TDS Deducted But Not Deposited — Consequences & How to Fix
Deducting TDS but not depositing it with the government is a serious default. The deductor faces interest, a disallowance of the related expense, penalties, and even prosecution. This guide explains the consequences and how to fix it.
The core rule
When you deduct TDS, you hold that money in trust for the government and must deposit it by the due date (generally the 7th of the next month; special dates apply for March and for TDS on property). Deducting and not depositing is treated far more seriously than a genuine short-deduction.
Consequences of not depositing TDS
- Interest under Section 201(1A): where TDS is deducted but not paid, interest of 1.5% per month (or part of a month) applies from the date of deduction to the date of actual payment. (If TDS was not deducted at all, the rate is 1% per month.)
- Disallowance under Section 40(a): the related expenditure can be disallowed while computing business income if TDS is deducted but not deposited by the due date (30% for resident payments; 100% for many non-resident payments), until it is paid.
- Deductor treated as “assessee in default” under Section 201, and a penalty under Section 221 can be levied.
- Prosecution under Section 276B: failure to deposit TDS can attract rigorous imprisonment (three months to seven years) with fine in serious cases.
- The deductee/employee may face difficulty getting TDS credit until it is deposited and reflected in Form 26AS/AIS.
How to fix it
- Deposit the outstanding TDS immediately with interest under 201(1A).
- File or revise the relevant TDS return (24Q/26Q/27Q) so the credit flows to the deductee’s 26AS.
- Respond to any TRACES default notice and reconcile challans.
TAXAJ handles TDS compliance, corrections and default resolution.
Frequently asked questions
What is the interest for TDS deducted but not deposited?
1.5% per month (or part) under Section 201(1A), from the date of deduction to the date of payment.
Can the expense be disallowed if TDS isn’t deposited?
Yes — under Section 40(a), the related expenditure can be disallowed until the TDS is deposited.
Is there prosecution for not depositing TDS?
Yes, Section 276B provides for rigorous imprisonment and fine in serious cases of failure to deposit deducted TDS.
Behind on TDS deposits or got a default notice? TAXAJ helps you deposit, correct returns and close defaults. Fix your TDS with TAXAJ →
Related guides: TAN & TDS · 24Q filing · Tax notice help
