Interest, late fee and disallowance for TDS mistakes
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Updated 03 Oct 2026
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AI summary
What it costs when TDS is not deducted, paid late or filed late.
4 sections 3 steps
Interest
| Mistake | Interest | Counted from |
|---|---|---|
| Not deducted, or deducted late | 1% a month | Date it should have been deducted to date actually deducted |
| Deducted but deposited late | 1.5% a month | Date of deduction to date of deposit |
A part of a month counts as a full month. Example: ₹10,000 TDS deducted on 25 May and deposited on 8 July. That is 3 months (May, June, July) × 1.5% = ₹450.
Interest must be paid before filing the TDS return. It is not a deductible business expense.
Late filing fee (section 427, old 234E)
- ₹200 a day until the return is filed.
- Capped at the total TDS in that return.
- Must be paid before the late return is accepted.
Expense disallowed
If TDS was not deducted, or deducted but not deposited by the return filing due date:
- 30% of the expense is disallowed for payments to residents (old 40(a)(ia)).
- 100% for payments to non-residents (old 40(a)(i)).
- The disallowed part is allowed in the year you finally deposit the TDS.
Example: professional fees ₹5,00,000 with no TDS → ₹1,50,000 added to income. At 30% tax, that costs about ₹45,000 extra this year.
How to avoid all three
- Tag every expense ledger with its TDS section.
- Check TDS limits before posting each bill.
- Deposit by the 7th and file the return before the due date.
Law as of September 2026. Verify against the latest notifications before relying on it for filings.
Sources
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