Interest on TDS (Tax Deducted at Source) refers to the penal interest charged by the Income Tax Department of India when a person or business fails to deduct TDS on time or deducts but does not deposit it within the prescribed due dates. This interest is a form of compensation the government levies for the delay in receiving tax dues.
Under the Income Tax Act, every individual or entity responsible for making specified payments (like salary, rent, contractor fees, etc.) must deduct a certain percentage as TDS and deposit it with the government. If there is any delay in deduction or payment of TDS, interest becomes applicable.
There are two key scenarios:
- Failure to deduct TDS – Interest is charged at 1% per month (or part of a month) from the date the tax was deductible to the actual date of deduction.
- Failure to deposit TDS after deduction – Interest is charged at 1.5% per month (or part of a month) from the date of deduction to the actual date of deposit.
This interest is mandatory and must be paid before filing the TDS return. It is not a penalty that can be waived and is calculated automatically based on delays.
For small business owners, startups, or professionals, understanding and complying with TDS provisions is critical to avoid unnecessary interest payments and legal consequences. Regular monitoring of payment schedules and timely filing can help avoid such liabilities.
To simplify your TDS compliance and avoid costly errors, you can explore expert tax assistance at FinTax24, where professionals handle TDS filings and income tax matters efficiently.
Interest on TDS serves as a reminder that timely compliance is not just about avoiding penalties—it also saves money and builds trust with regulatory bodies.