Interest for non-payment of tax after deduction:

Background:
As per the existing provisions of the Income-tax Act, 19611 (‘the Act’),
any person who is regarded as an assessee in default in respect of tax
deduction at source compliances is liable to pay interest at one percent
per month for the period of default.

A person is regarded as a assessee in default in case the deductor/

employer, as the case may be, does not deduct the tax at source (either
wholly or partly) from payments on which tax is required to be deducted under
the Act, or after deducting does not pay the same into the Government Treasury.

The period of default is from the date on which tax was deductible to
the date on which it is actually paid.

Amendment by the Finance Act, 2010:

The Finance Act, 2010 has amended the said provisions and interest
shall be levied as under:

• At one percent for every month or part of a month from the date on
which such tax was deductible to the date on which such tax is
deducted; and

• At one and one-half percent for every month or part of a month

from the date on which such tax was deducted to the date on which
such tax is actually paid.

The amended provisions are effective from 1st July 2010.

1 Section 201(1A)

The increase in the rate of interest from one percent to one and one-half
percent w.e.f 1st July 2010 in respect of non-payment of tax after
deduction is an attempt to ensure stricter compliance on the part of the
deductor/ employer to pay the tax into the Government treasury on a
timely basis.