A person is liable to pay interest for various delays/defaults & one of them is Interest u/s 201(1a) of Income Tax Act, 1961 for Delay in Payment of TDS/TCS.
In section 201 of the Income-tax Act, for sub-section (1A), the following sub-section shall be substituted with effect from the 1st day of July, 2010, namely:—
“(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,—
(i) at one per cent. for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and
(ii) at one and one-half per cent. for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200.”
Now after analyzing the wording of the Provision we can understand the following points:
a) Section 201(1A)(i) is for Interest for Non-Deduction of TDS/TCS & it will be paid from the date on which tax was deductible to the date of actual deduction.
b) Section 201(1A)(ii) is for Interest for Delay in payment of TDS/TCS & it will be paid from the date of Deduction of TDS/TCS till the date of actual payment.
Now after reading the text of the Section, there are various queries that will arise in the minds of the readers. To remove the queries we have prepared a list of Frequently Asked Questions in relation to Interest u/s 201(1a) of Income Tax Act, 1961.
Frequently Asked Questions (FAQ’s) on Interest u/s 201(1a) of Income Tax Act, 1961
Q1 What does a month means for levy of Interest u/s 201(1a)?
Month would mean as period of 30 days.
Q2 What rate of interest should be charged for the month in which tax was actually deducted since both the sub section i.e. 201(1A)(i) & 201(1A)(ii) is included in this month in the calculation of interest?
This can be explained through an example which is as follows:
If tax which was to deducted in Apr’2020, is actually deducted in June’2020 and deposited in Aug 2020.
Then, Interest For late deduction @1%– From Apr 2020 to June 2020 i.e. 3 months
Interest for late deposit @ 1.5%– From June 2020 to Aug 2020 i.e. 2 months
In the above case, the month of June 2020 is included in both types of interest.
Q3 In case the Assessee fails to Deposit the TDS after the Deduction of TDS, then Interest u/s 201(1a)(ii) will be taken from the Due date of Deposit or the Date of Deduction?
In case the Assessee fails to Deposit the TDS/TCS after Deduction then Interest would be calculated @ 1.5% from the DATE OF DEDUCTION instead of Due Date of Deposit.
Q4 Do we need to pay the Interest on Late Payment/Late Deduction of TDS/TCS before the furnishing of the TDS/TCS Statement?
The Interest should be paid before filing of the TDS/TCS return.
Hope this article on Interest u/s 201(1a) of Income Tax Act, 1961 has brought clarity regarding the provisions.