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February 20, 2023

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Interest on Delayed Income Tax, TDS and GST: Tax Deduction

Failure to meet tax filing deadlines can have a negative impact on your finances beyond the tax obligations themselves. Interest on delayed income tax, TDS and GST may be applicable in case of default in payment of tax, TDS and deposit of GST within the specified time limit.

There are different provisions for computing interest under income tax and Goods and Services Tax (GST). Understanding these regulations can prevent unnecessary expenses and ensure compliance.

What is the interest on Delayed Tax Payment?

Delayed tax payment interest is an interest rate statutorily charged when a taxpayer does not pay or deposit the tax within the stipulated time. It is paying the government for the time it takes to receive the amount of tax.

The interest rate will vary by tax type and the extent of the default. For instance, TDS is charged at various rates if the tax is not deducted from the payees or it is deducted but delayed in deposits.

Interest on Delayed Income Tax

The income tax interest may be in the case where a taxpayer has not paid the prescribed advance tax, or has paid tax after the prescribed tax period has elapsed. Interest is also payable in certain conditions of deferment or short payment of advance tax.

The interest framework subsists in the Income-tax Act, 2025 for applicable tax years with regard to specified defaults. The interest shall be generally charged at the rate of 1 per cent per month or part of a month in respect of the failure to pay advance-tax in respect of any shortfall, subject to the provisions.

Common scenarios where interest is paid on income tax

Short payment or non-payment of advance tax
Extension of advance tax installment payments
Outstanding self-assessment tax
Some tax obligations that follow tax assessment

How to Calculate Tax Interest

Assume that a taxpayer has a tax deficiency of ₹50,000 and the interest rate is 1 per cent per month, compounded for two months.

Interest = ₹50,000 × 1% × 2

Interest = ₹1,000

Thus, the taxpayer would have to pay the relevant tax plus an interest of ₹1,000 to be calculated strictly according to the provisions of law.

Interest on Delayed TDS Payment

TDS is tax deducted by the person responsible for making specified payments like salary, professional fees, rent, interest or contractual payments.

Interest may be charged for postponing the compliance of TDS. The provisions will differentiate between the two cases: failure to deduct TDS and failure to deposit TDS after payment.

TDS Interest Rates

TDS Default	Interest Rate	Period of Calculation
Failure to deduct TDS	1% per month or part thereof	From the date tax was deductible to the date of deduction
TDS deducted but deposited late	1.5% per month or part thereof	From the date of deduction to the date of actual payment

The Income Tax Department has verified that these TDS interest rates continue to be the same under the Income-tax Act, 2025.

Also Read: Difference Between TDS and TCS

Example of Delayed TDS Deposit

Assume that a business has deducted TDS of ₹ 20,000 and failed to deposit it within 2 months.

Interest = ₹20,000 × 1.5% × 2

Interest = ₹600

The company would then have to pay the TDS, plus the interest.

Interest on Delayed GST Payment

GST taxpayers have to pay tax on time. If GST is not paid by the due date, then interest can be charged under Section 50 CGST Act, 2017.

Generally, interest is charged on the unpaid taxes based on the time period of delay. The rate will be determined by the GST framework.

GST Interest Calculation

They are based on the following principle:

GST Interest = Unpaid Tax × Interest Rate (as per the notification) × Number of Days Delayed/365

Let’s say the unpaid GST is ₹100,000, the rate of interest is 18% and the delay is 10 days.

Interest = ₹100,000 × 18% × 10 ÷ 365

Interest ≈ ₹493.15

Due to the nature of the tax liability, provisions to be met, payment dates, and other factors, the actual interest liability may differ.

Interest on Wrongly Availed or Utilised GST ITC

Input Tax Credit is a mechanism under which the eligible GST taxpayers can avail the benefits to reduce the tax liability on their output tax against the tax liability on input tax.

But under certain conditions if ITC is wrongly availed and utilised, provisions of interest can be imposed. The provisions of interest on the excess or undue ITC have been provided in Section 50 of the CGST Act.

The period for calculation may be different from the normal GST payment delay period. Hence, purchase records need to be carefully matched with the GST returns and ITC that is available, before claiming the credit.

Also Read: Income Tax notices based on GSTR-2A? Know why

Income Tax vs TDS vs GST Interest

Tax Type	Common Default	Interest Basis
Income Tax	Advance-tax shortfall	Generally 1% per month for specified defaults
TDS	Failure to deduct	1% per month or part thereof
TDS	Deducted but deposited late	1.5% per month or part thereof
GST	Delayed payment of tax	Applicable rate under GST provisions
GST ITC	Wrongly availed and utilized ITC	Applicable rate under GST provisions

Conclusion

Late fees for any income tax, TDS and GST payments can be a major expenses for tax evasion. Income tax interest is generally for advance tax defaults and TDS interest is for non-deduction or deduction but late deposit of tax. In general, interest on GST is levied on the delayed payment of tax and there are specific provisions for interest on wrongly availed ITC and wrongly utilised ITC.

Avoiding unnecessary interest by filing tax returns, making timely tax deductions, and making timely tax payments and timely tax reconciliations are important for taxpayers. It is important to check the tax records of businesses periodically and consult a tax professional for complex tax situations.

Avoid being late with tax obligations, maintain tax records, and pay taxes on time to minimize interest and other penalties.

FAQs

What is the interest on delayed tax payment?

An interest charged on delayed payment of tax, which is a statutory charge that may be imposed if the payment of tax, deduction of tax or deposit is delayed, is an interest on delayed payment of tax.

What is the interest rate on late deduction of TDS?

TDS deducted after the due date is generally liable to be charged at the rate of 1% per month or a part of it.

What is the interest rate in case of delayed TDS deposit?

If TDS has been deducted and deposited late, interest is normally charged at a rate of 1.5% per month or part of a month.

Does interest applicable on delayed payment of GST?

Yes. GST interest can be applied if the tax has not been paid on time. The rate that applies is determined by the GST provisions.

Is there any interest levy on the wrong availed GST-ITC?

Yes. If GST input tax credit is availed and used wrongly, then the interest provisions are applicable, subject to the relevant laws.

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