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Each e-TDS statement is processed by TIN and defaults are put on web site for deductors to rectify.

In this article, we will examine what is default on account of interest and how it can be avoided

When is interest payable ?

As per income-tax , interest is payable under the following two circumstances

1. Tax is not deducted , when it was deductible
2. Tax once deducted, is not paid on or before  due date

When tax is to be deducted

At the time of credit or payment, whichever is earlier

193- Interest on securities

194A- Interest Other than “Interest on securities”

194C- Payment to contractors / sub contractors

194D – Insurance commission

194H – Commission or Brokerage

194G- Commission on sale of lottery tickets

194I- Rent

194J- Professional or technical fees

Before making payment or distribution

194- Dividend

At the time of payment

192- Salaries

194B- Winning from lotteries / crossword puzzles

194BB Winnings from horse races

194EE – Payment from National Saving Scheme

194F Payment for repurchase of units by UTI / mutual funds

194LA: Payment of compensation on acquisition of certain immovable property

What is the Due date of deposit of TDS ?

• All the TDS deductions made during a month are to be paid on or before7th of the next month. Example : All deductions made during April ,must be paid on or before May 7th, 2010.In case 7th of the month happens to be a Sunday or a bank holiday, then the payment can be made on the next business day.

• Beginning FY 2010-11 ,for deductions made during the month of March, payment must be made on or before 30th April.

What is the rate of interest ?

W.e.f 01-07-2010

• From the date when TDS was deductible till date of actual deduction,rate of interest is 1% p.m.
• For delayed deposit, from date of deduction till actual date of payment, rate of interest is 1.5% p.m

Prior to 01-07-2010

• From FY 2006-07 onwards for delayed deposit, from date of deduction till actual date of payment, rate of interest is 1.0% p.m

What is the due date of payment  of interest ?

Interest must be calculated and paid before filing of eTDS statement of the quarter.

Quarter 1	Jul-15
Quarter 2	Oct-15
Quarter 3	Jan-15
Quarter 4	May-15

How is interest to be calculated ?

• Interest is to be calculated for every month or part of a month comprised
  in a period, any fraction of a month shall be deemed to be a full month
• The amount of tax, penalty or other sum in respect of which such interest
  is to be calculated shall be rounded off to the nearest multiple of one
  hundred rupees and for this purpose any fraction of one hundred rupees
  shall be ignored and the amount so rounded off shall be deemed to be the
  amount in respect of which the interest is to be calculated.

Of course, those using TdsPac software from Fast Facts need not worry. Automatic and accurate calculation of interest is available in single click.

Example of Interest Calculation

Date Of Payment	Date of Deduction	Due Date	Date of Deposit	Delayed Deposit		Delayed Deduction
				Months	Rate	Months	Rate
05/04/2010	05/04/2010	07/05/2010	09/05/2010	2	1%	-	-
10/04/2010	10/04/2010	07/05/2010	09/05/2010	1	1%	-	-
02/07/2010	04/08/2010	07/09/2010	07/09/2010	-	-	2	1%
02/07/2010	04/08/2010	07/09/2010	15/09/2010	2	1.50%	2	1%

Avoiding Interest Default

To avoid interest default

• Deduct tax at source in time
• Deposit TDS by due date
• In case of delayed deduction / deposit ,calculate interest and deposit the same
• Show such interest properly in eTDS statement

Rectifying Interest Default

• You may download default notices after logging into your TAN account.
• Default Notice is a plain excel sheet without any password protection
• If there is any default on account of non-payment or short  payment of interest, you need to pay up the same
• After paying , you have to  file correction statement by including the interest payment challan.

Income tax department has started processing of each and every eTDS statement in terms of section 200A. If there is any default, the same is available in the TIN web site.

How to view the defaults

• Visit www.tin-nsdl.com
• Login->TAN
• Click “Default”
• You will be able to view a table containing Financial Year, Form No, Quarter and a link to download file containing defaults

File format

• If the number of records is small, the file is in Excel format and without any password
• If the number of records is very large, the file is ^ delimited text file and a format is given.

Various defaults

• The file contains three type of defaults
• Short Deduction
• Short Payment
• Late Payments
• Each of the above is discussed in details

Analysis done by Fast Facts

Fast Facts team has done detailed analysis of several notices and the findings are given below for the benefit of our readers.

Late Payment Cases

• For each deductee record, date of deduction is displayed
• Due Date  is  worked out based on Provision and Non-Provision transactions
• Late Payment interest amount is calculated as per provisions of income-tax Act and Rules
• There is a column “Interest on Late Payment of Interest” , which is not filled. Possibly in future , this will also be calculated and shown
• If any amount of Interest is paid thru challans, the same is deducted from total interest and remaining amount is shown

Short Deduction Cases

• Short deduction = Amount deductible as per Tax Rate Flag Less Amount deducted
• For a deduction record “Tax Rate Flag” is shown as follows

“P” – Tax deducted at prescribed rate as per Income Tax Act

“L” – Tax deducted at lower rate as specified in the return.  For sections having sub-sections, tax rate basis is assumed to be “L”

“H” – Higher Rate

• Based on “Tax Rate Flag”, amount deductible as  calculated is shown
• Amount deducted is subtracted from amount deductible to show “Short Deduction Amount”

Date of payment	PAN of the deductee	Section code	Tax rate flag **	Amount paid	Amount deductible (A)	Amount deducted (B)	Short deduction amount (C)
28-Jul-08		194J	P	19950.00	2054.85	2009.00	45.85
10-JUL-10	BDDPS2497R	194J	H	6000.00	1200.00	600.00	600.00

Above two cases are explained in detail

• In the first case, Amount deductible is worked out by applying applicable rate of 10.3% on Rs. 19950 = 2054.85. Actual amount deducted is Rs. 2009. Hence there is a short deduction of  Rs. 45.85.
• In the second case, everything appears to be correct. But the PAN given is not found in the income-tax database. This is reflected in “Tax Rate Flag” – H. Hence a penal rate of 20% is applied to Amount paid to arrive at amount deductible.
• Fast Facts  team also found that such cases where PAN is not found in income-tax database,  Form 16A is also not issued by the TIN system.

Short Payment

• These are simple cases, where amount deposited is less than amount deducted

In a separate article , Fast Facts Bulletin will explain what corrective actions are to be taken in response to the defaults and what precautions to be taken to avoid generation of such default notices.