Budget 2024: Goverment Hikes Interest Rates for Late Payment of TCS

The collection of tax at source (TCS), is crucial in the Indian taxation system. It ensures timely tax payments. Under Section 206C of Income Tax Act businesses trading certain goods like alcoholic liquor, forest produce and scrap must collect tax at source. However discrepancies in interest rates for late payments of TCS compared to TDS have prompted amendments. These aim at alignment and efficiency.

Sub-section (7) of Section 206C mandates that any person who fails to collect TCS or fails to deposit it with Central Government, must pay simple interest at rate of 1% per month or part thereof. This interest is calculated from date tax was collectible until date it is paid.

The current interest rate for late TCS payments is not consistent with interest rates for late TDS payments under sub-section (1A) of Section 201. For late deposit of TDS a higher interest rate of 1.5% per month is applicable. This rate is due to severity of failing to deposit deducted taxes. Failing to deposit denies deductee their tax credit and delays government’s receipt of funds. Similar issues are faced by collectees of TCS.

To address this inconsistency. It has been proposed to amend sub-section (7) of Section 206C. The amendment would increase interest rate for non-payment of TCS from 1% to 1.5% per month or part thereof. This interest would be calculated from the date tax was collected. It continues to the date it is actually paid to the government.

Aligning interest rates for late payments of TCS and TDS will:

1. Ensure consistency in penalties for delayed tax payments. This reflects importance of timely deposits,

2. Discourage delays in depositing TCS. Improving compliance and ensuring due taxes reach Central Government promptly.

3. Simplify interest calculation process for taxpayers. Authorities benefit by having uniform rate.

The proposed amendment is scheduled to take effect from 1 April 2025. This change provides enough time for businesses to adjust their practices. Ensure timely payment of TCS. Avoid higher interest charges.

The alignment of interest rates for late payments of TCS with those of TDS represents significant step. It aims towards enhancing compliance and efficiency in tax system. By increasing interest rate to 1.5% per month the proposed amendment underscores importance of timely tax payments. It aims to prevent delays. These delays can adversely affect both government and taxpayers.