Late TDS Filing: Interest, Late Fee and Correction Returns

TDS defaults are expensive because the costs stack up: interest on late deposit, a daily late fee on late returns, a possible penalty, and a disallowance of the expense in your own tax return. The good news is that most defaults can be fixed quickly through TRACES if you act early.

These rules continue under the Income-tax Act, 2025 (sections 397–399 and the fee and penalty provisions) at the same rates. Defaults for FY 2025-26 and earlier are handled under the 1961 Act.

The three costs of a TDS default

1. Interest (old section 201(1A))

Situation	Interest
TDS not deducted or deducted late	1% per month or part of a month, from the date it should have been deducted to the date it was actually deducted
TDS deducted but deposited late	1.5% per month or part of a month, from the date of deduction to the date of deposit

“Part of a month” counts as a full month. One day late can cost a full month’s interest.

Example: TDS of ₹50,000 deducted on 25 June 2026, due on 7 July, but deposited on 10 August. The months are counted from 25 June: June, July and August = 3 months × 1.5% = ₹2,250.

Interest must be paid before filing the TDS return. Otherwise the return is processed with a default.

2. Late filing fee (old section 234E): ₹200 per day

₹200 for every day of delay in filing the quarterly TDS or TCS return
capped at the TDS amount for that return
mandatory: it can’t be waived by showing reasonable cause
must be paid with the return, otherwise TRACES raises a demand

Example: A Q1 return (due 31 July) filed on 30 September is 61 days late, so the fee is ₹12,200, or the TDS amount if lower.

3. Penalty (old section 271H)

₹10,000 to ₹1,00,000 for not filing the TDS return within one year of the due date, or for filing incorrect details (PAN, amounts).
No penalty if you deposit the TDS, interest and late fee and file the return within one year of the due date.

Plus: disallowance of the expense

If TDS on a resident’s payment is not deducted or not paid by the ITR due date, 30% of the expense is disallowed in your income tax return. It is allowed back in the year you pay. For non-residents it is 100%.

Reading a TRACES default notice

After processing your return, TRACES issues an intimation (often called a “TDS default notice”) listing:

Short payment: the challan doesn’t cover the TDS reported
Short deduction: a lower rate was applied than required, e.g. no PAN, so 20% should have applied
Late payment interest
Late filing fee
Interest on late deduction

Log in to TRACES → Defaults → Request for Justification Report. The report shows exactly which deductee entries caused each default.

How to correct a TDS return

Problem	Fix (on TRACES or through a correction return)
Wrong or missing challan details	Online challan correction on TRACES (if the challan isn’t already consumed), or a correction return
Wrong deductee PAN	PAN correction through an online or offline correction
Interest or fee not paid	Pay through e-Pay Tax, then tag the challan in a correction return
Wrong section or rate	Offline correction return using the consolidated (conso) file from TRACES
Missing deductee entries	Add deductee rows in a correction return

Steps for an offline correction:

Download the Conso file from TRACES (Statements/Payments → Request for Conso file).
Prepare the correction in the RPU utility or your TDS software.
Validate it with FVU and upload it on the income tax portal (e-File → Income Tax Forms → TDS → upload TDS).
Check the processing status on TRACES and download revised certificates (Form 131, formerly 16A).

Time limit: under the Income-tax Act, 2025, correction statements are reported to be allowed only within two years from the end of the financial year in which the original statement was due. Under the 1961 Act it was six years. Don’t let defaults sit.

How to reduce TDS costs

Deposit by the 7th of every month (30 April for March). Set a monthly reminder.
Collect PANs from every vendor before the first payment. Missing PANs mean 20% TDS and short-deduction defaults.
Check PAN-Aadhaar linkage of vendors. An inoperative PAN also attracts 20%.
Review the Justification Report every quarter and fix defaults before notices pile up.
File returns on time even with nil or partial data. The ₹200-per-day fee adds up fast, and you can correct the return later.

Frequently asked questions

Can the ₹200 per day late fee be waived?
No. It is a fixed fee, not a penalty. It is limited to the TDS amount in the return.

I deducted TDS but forgot to deposit it for months. What should I do?
Deposit it immediately with 1.5% per month interest, file or correct the return, and issue certificates. Keeping deducted TDS can also attract prosecution in serious cases.

The payee has already paid tax on the income. Am I still liable?
If the payee has included the income in their return and paid the tax, you are not treated as in default for the tax itself (you need a CA certificate in the prescribed form), but interest up to the date of the payee’s return still applies.

Got a TRACES default notice? Garvita Jain & Co. downloads the justification report, works out what you actually owe, files correction returns and helps you set up a monthly TDS routine so defaults don’t recur. Contact us here, or at contact@garvitajainandco.com or +91 98678 16597.

This article is general information based on the law as of November 2026 and is not professional advice.

Sources

Official

Professional / CA publications

Late TDS Filing and Payment: Interest, Late Fees and How to Correct Defaults