How to Calculate interest on delay TDS Payment

Sometimes Deductor deposit TDS after the due date without Interest, hence when return processed, demand notice raised by TRACES and penalize heavy interest on late payment. But some Deductor does not know how to calculate Interest on delay TDS Payment. 

The interest is to be calculated as per illustrations below: 

Case 1:

Q1, Tax Deducted on 26^th June, TDS deposited on 9^th July (due date was 7^th July)

The period of 26^th June to 30^th June will be calculated as one month (being part of a month) & from 1^st July to 9th July will also be treated as one month. As such in this case, the interest payable is for two months. Total interest would be 3%. Sounds odd, but it is true -  for a delay of 2 days, one has to pay interest for two months. 

Case 2:

Q4, Tax Deducted on 20^th March, TDS deposited on 5^th May  (due date was 30^th April)

The period of 20^th March to 31^st March will be calculated as one month, 1^st April to 30^th April will be another month & from 1^st May to 5^th May will be treated as another one month. As such in this case, the interest payable is for three months. Total interest would be 4.5%. For a 5 day delay, the interest payable is for 3 months. 

Logic behind this calculation is that, if dues are not paid on time, the interest for each month (or part thereof) is to be paid right from the date of deduction till date of deposit of the TDS. Each month is treated based on the ‘Calendar Month’ instead of counting the number of days.