When filing income tax, there are several situations that can result in a person being liable to pay interest, such as when there are delays or defaults in the process. The different situations that can lead to paying interest are defined by specific sections of the law, with each section applying to different circumstances.
Sections 234A, 234B, 234C, and 234D address issues of delay or default, such as delayed filing of tax returns or delayed payment of advance tax. In contrast, sections 201(1A) and 206C(7) apply to the failure to deduct tax at source or the delay in payment of tax that has been collected at source. This article will focus on these last two sections.
Before examining the provisions relating to interest for failure to deduct tax at source or delay in payment of tax deducted at source, it is important to understand the due date for paying tax deducted at source to the government’s account. Sections 192 to 195 specify various items of payment on which tax is to be deducted by the payer. A non-government payer who deducts tax is required to pay it to the government as follows:
- Tax deducted from April to February should be paid within 7 days from the end of the month in which the deduction is made.
- Tax deducted in March should be paid to the government by the 30th of April.
It should be noted that tax deducted under section 194-IA (on immovable property), section 194-IB (on rent), and section 194M (on certain sums paid by an individual or HUF) must be paid within 30 days from the end of the month in which the deduction is made.
Regarding interest for failure to deduct tax at source or delay in payment of tax deducted at source, section 201 of the Income Tax Act is clear: if a person liable to deduct tax at source fails to deduct it or, after deducting it, fails to pay the whole or any part of the tax to the credit of the Government, then they are liable to pay simple interest on the amount of tax not remitted. The interest is levied as follows:
- Interest shall be charged at 1% for every month or part of a month on the amount of tax from the date on which the tax was deductible to the date on which it was deducted.
- Interest shall be charged at 1.5% for every month or part of a month on the amount of tax from the date on which the tax was deducted to the date on which it was actually remitted to the government.
Thus, a person liable to deduct tax at source who delays in deducting it must pay an interest of 1% per month or part of a month, and a person who deducts the tax but delays in remitting it must pay an interest of 1.5% per month or part of a month.
It is essential to note that if the deductee pays the tax, then the payer who failed to deduct the tax at source is not liable to pay interest under section 201. The taxpayer will be able to claim a credit for the tax paid by the deductee, which will reduce their tax liability.
To clarify this, let’s take the example of TDS payment for different months, as shown in the table below:
| TDS for the Month of | Due date of deposit of TDS with Government | Actual Date of deposit of TDS with Government | Whether deposited within the due date? |
| April | 07th May | 03rd May | Yes |
| May | 07th June | 04th June | Yes |
| July | 07th August | 08th August | No |
| September | 07th October | 06th October | Yes |
| November | 07th December | 31st December | Yes |
| January | 07th February | 04th February | Yes |
| March | 30th April | 30th April | Yes |
Interest implications in cases of non-deduction or non-collection of tax are governed by the Income Tax Act, 1961. Section 201 of the Act deals with cases of failure to deduct the whole or part of the tax at the source. According to this section, if the payer fails to deduct the tax at source, he is deemed to be an assessee-in-default. However, if the recipient of the payment has furnished his return of income, has included the income received in his return and has paid the due taxes on it, the payer will not be treated as an assessee-in-default. In such cases, even though the payer is not an assessee-in-default, he is liable to pay interest under section 201(1A). Interest will be payable from the date on which such tax was deductible to the date of furnishing of the return of income by the recipient. The interest in such cases will be levied at 1% for every month or part of the month. The interest has to be paid as per the order of the Assessing Officer.
Every deductor has to furnish a quarterly statement in respect of tax deducted by him, i.e., TDS return. As per section 201(1A), the interest for the delay in the payment of TDS should be paid before filing the TDS return.
Section 206C of the Act deals with the collection of tax at source (TCS) and gives various items on which tax is to be collected at source. The tax collected has to be paid to the credit of the Government within a period of 7 days from the last day of the month in which the tax is collected at source. In case the tax is collected by an office of the Government, it has to be paid to the credit of the Central Government on the same day.
As per section 206C(7), if the person responsible for collecting tax does not collect the tax or fails to pay it to the credit of the Government within the due date prescribed, he shall be liable to pay simple interest at the rate of 1% per month or part thereof on the amount of such tax. Interest shall be levied from the date on which such tax was collectible to the date on which the tax was actually paid.
Section 206C(6A) deals with cases of failure to collect the whole or any part of the tax at source. In such cases, the collector will be deemed as an assessee-in-default. However, the collector will not be deemed as an assessee-in-default in respect of tax not collected or short collected if the buyer or licensee or lessee from whom tax is to be collected has furnished his return of income, has taken into account the amount for computing the income in the return of income, has paid the tax due on the income declared by him and has furnished a certificate to this effect from a chartered accountant in Form No.27BA. In such cases, interest will be levied at 1% for every month or part of a month from the date on which such tax was collectible to the date of furnishing of the return of income by the buyer or licensee or lessee. Even though the collector is not an assessee-in-default in such cases, he is liable to pay interest under section 206C(7). The interest has to be paid as per the order of the Assessing Officer.
In conclusion, there are several types of interest charges that can be applied when individuals or companies delay or default on their tax payments. It’s important to understand the due dates for tax payments and the different interest rates that can be applied for various types of delays and defaults. By staying informed and paying taxes on time, individuals and companies can avoid these additional charges and maintain their financial health.
