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Interest on late TDS deduction (1% a month) and late deposit (1.5% a month) under section 398(3)(a), and the ₹200-a-day late fee for a TDS statement under section 427. These were sections 201(1A) and 234E of the 1961 Act.
Quick Statutory Answer
Since 1 April 2026, TDS defaults are governed by the Income-tax Act, 2025. Under section 398(3)(a), which replaced section 201(1A), interest runs at 1% a month or part of a month from the date tax was deductible to the date it is deducted, and 1.5% a month or part of a month from the date of deduction to the date it is paid to the government. A late quarterly TDS statement costs ₹200 a day under section 427 (formerly 234E), capped at the TDS amount, and TDS on a payment to a resident that is not deducted or not paid by the return due date makes 30% of the expense non-deductible under section 35 (formerly 40(a)(ia)). The rates did not change; the section numbers did. Tax deducted up to 31 March 2026 is still dealt with under the 1961 Act.
| Default | Section (2025 Act) | Rate / penalty | Runs from | Cap / effect |
|---|---|---|---|---|
| Late deduction | 398(3)(a) — formerly 201(1A)(i) | 1% a month or part of a month | Date deductible to date deducted | No cap |
| Late deposit | 398(3)(a) — formerly 201(1A)(ii) | 1.5% a month or part of a month | Date deducted to date paid | No cap |
| Late TDS statement | 427 — formerly 234E | ₹200 a day | Statement due date to filing date | Capped at the TDS amount |
| Statement not filed, or wrong | 461 — formerly 271H | ₹10,000 to ₹1,00,000 | No penalty if tax, fee and interest are paid and the statement is filed within one month of its due date (one year under the 1961 Act) | Imposed by the Assessing Officer |
| TDS not deducted or not paid by the return due date | 35 — formerly 40(a)(ia) | 30% of the expense disallowed | The year of the expense | Allowed in the year the tax is paid |
On ₹50,000 TDS deducted on 15 April 2026 and deposited on 15 July 2026 (delay of 3 months at 1.5% per month): late deposit interest under section 398(3)(a) of the Income-tax Act, 2025 (formerly 201(1A)(ii)) is ₹3,000. With Form 26Q statement due on 31 July 2026 filed 20 days late on 20 August 2026, the section 427 late fee (formerly 234E) at ₹200/day adds ₹4,000, totaling ₹7,000 in statutory additions. Furthermore, failure to deposit before return filing risks a 30% expense disallowance under section 35 (formerly 40(a)(ia)).
Section 201(1A) was replaced on 1 April 2026 by section 398(3)(a) of the Income-tax Act, 2025, with the same rates: 1% a month or part of a month from the date tax was deductible to the date it is deducted, and 1.5% a month or part of a month from the date of deduction to the date it is paid. Tax deducted up to 31 March 2026 is still dealt with under section 201(1A) of the 1961 Act.
By month, and any part of a month counts as a whole one — the section charges "for every month or part of a month". Tax deducted on 10 April and deposited on 15 May is two months late, so 3% interest is payable.
Section 234E became section 427 of the Income-tax Act, 2025. The fee is unchanged: ₹200 for each day the quarterly statement (24Q or 26Q) is late, and it cannot exceed the TDS amount for that statement.
The window has. Under section 461 of the 2025 Act (formerly 271H) the Assessing Officer can impose ₹10,000 to ₹1,00,000, and the safe harbour is paying the tax, fee and interest and filing the statement within one month of its due date. Under the 1961 Act it was one year.
It is now section 35 of the Income-tax Act, 2025. Where TDS is deductible on a payment to a resident — contractor or professional fees, now both under section 393 — and it is not deducted, or not paid by the due date for the return of income, 30% of the expense is disallowed for that year and allowed in the year the tax is paid.
No. Interest for late deduction or deposit of TDS is not an allowable business expense; it is a cost of the default, not of earning the income.
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