If you deduct TDS late, deposit it late or file the TDS return late, you pay for each mistake separately: interest under Section 201(1A) for the delay in deduction or deposit, and a late fee under Section 234E for the delay in the return. Here is how late TDS interest and the 234E fee work, with a worked example you can adapt to your own numbers.
Late TDS interest and fee at a glance
DefaultChargeRuns fromRuns until TDS not deducted (or deducted short)Interest at 1% per month or part of a monthDate the tax was deductibleDate it was actually deducted TDS deducted but not deposited on timeInterest at 1.5% per month or part of a monthDate of deductionDate of deposit TDS return filed late (24Q, 26Q, 27Q)Fee of Rs 200 per day under Section 234EDue date of the returnDate the return is filedThe interest is a charge for using the government's money; it is not a penalty and it is not deductible as a business expense. The 234E fee is capped at the amount of TDS in that return.
Interest under Section 201(1A): two different rates
The 1% rate applies when you should have deducted tax but did not, or deducted less than you should have. The 1.5% rate applies when tax was deducted but you did not deposit it with the government in time. Both are counted per month or part of a month, so a delay of even one day into a new month costs a full month's interest.
Because the deposit-delay rate is higher, a deducted-but-undeposited amount gets expensive quickly. It also means the money you withheld from the deductee is not yours to use as working capital.
When is the deposit actually due?
For most deductors who are not government offices, TDS deducted in a month is due by the 7th of the next month. TDS on amounts deducted in March is due by 30 April. Confirm the date for your category and for any extension before you rely on it; our TDS and TCS deposit guide for October 2026 covers the next date.
Worked example: interest
Assume you deducted TDS of Rs 20,000 from a contractor's bill on 20 August. The deposit was due on 7 September, but you paid it on 15 October.
- Period: 20 August to 15 October.
- Months counted: 20 August to 20 September is one month; 21 September to 15 October is a part of a month, so it counts as a second month. Total: 2 months.
- Rate: 1.5% per month, because tax was deducted but deposited late.
- Interest: Rs 20,000 x 1.5% x 2 = Rs 600.
The interest must be paid along with the TDS. Pay it through the challan before you file the return, so the return shows the correct amounts.
Worked example: the Section 234E late fee
The quarterly TDS return for July to September is due on 31 October. Suppose you file it 10 days late, on 10 November, and the TDS in the return is Rs 20,000.
- Fee: Rs 200 x 10 days = Rs 2,000.
- Cap: the fee cannot exceed the TDS in the return (Rs 20,000), so Rs 2,000 stands.
The fee must be paid before the return is accepted. For a deductor with many deductees across 26Q and 24Q, the daily fee adds up fast, so file on time even if a few details need a later correction statement. See our TDS return checklist for July to September 2026 for what to gather before filing.
Other consequences of late TDS
- Expense disallowance: where tax is not deducted, or deducted but not deposited by the prescribed time, a portion of the related expense can be disallowed in your own income tax computation under Section 40(a)(ia). Your CA can tell you the exact treatment for your case.
- Deductee's credit: if the return is late or wrong, the deductee may not see the credit in Form 26AS, which leads to follow-up calls and strained vendor relationships.
- Notices: mismatches between challans and returns can trigger a default notice from the TDS Centralised Processing Cell.
How to avoid paying both charges
- Deduct at the time of credit or payment, whichever is earlier, and record the date.
- Keep a monthly deposit reminder for the 7th, and a quarterly one at least a week before the return due date.
- Match your challans to your deduction register before filing the return.
- If you have already defaulted, pay the interest and file immediately; the charges keep growing every day or month you wait.
Key takeaways
- Interest is 1% per month for non-deduction and 1.5% per month for non-deposit; any part of a month counts as a full month.
- The 234E fee is Rs 200 per day of delay, capped at the TDS amount in the return.
- Interest and the fee are separate; you can owe both.
- Keep a dated deduction register so you can compute the exact figure.
Keeping a clean record of every deduction, challan and due date makes this routine instead of stressful. Whatever tool you use to keep your books, such as Smart Books, confirm the exact interest and fee for your case with your chartered accountant before you pay.
