A late TDS or TCS return costs a late fee of ₹200 for every day of delay, under section 427 of the Income-tax Act 2025 (section 234E of the 1961 Act), capped at the tax in that return. This guide explains how the fee and the 1% and 1.5% interest are counted, how to pay them on the e-filing portal, when a penalty can follow, and what changed in 2025 and 2026. If you pay the tax, fee and interest and file within one month of the due date, no penalty is levied for the delay.
How is the TDS late fee under section 427 (234E) counted?
The TDS late fee is ₹200 for each day from the due date to the date you actually file the statement. It cannot exceed the tax deductible or collectible for that statement, and it must be paid before the statement is filed. The fee is charged for each quarterly statement separately, so two late quarters mean two fees.
The Income Tax Department's own explainer on the late filing fee gives an example: a TDS return for Q1 of FY 2025-26, due 31 July 2025 and filed on 4 April 2026, is 247 days late. At ₹200 a day that is ₹49,400, or the TDS in that return if lower.
The department treats it as a fee, not a penalty, and the TRACES FAQs note that TRACES has no option to waive it.
Worked example: a late Form 140 (old Form 26Q)
Bluepeak Foods Private Limited (a made-up company) deducted ₹38,000 of TDS on payments to resident contractors and professionals in Q2 of tax year 2026-27 (July to September 2026). Its Form 140, the new name for Form 26Q, was due on 31 October 2026.
| Filed on | Days late | Late fee under section 427 | Penalty position |
|---|---|---|---|
| 25 November 2026 | 25 | ₹5,000 | Within one month: no penalty if tax, fee and interest are paid |
| 10 January 2027 | 71 | ₹14,200 | Past one month: penalty of ₹10,000 to ₹1,00,000 can be levied |
The cap matters for small deductors. If the same quarter had only ₹6,000 of TDS and the return went in on 30 December 2026, 60 days late, the fee would be ₹6,000 rather than ₹12,000.
How is interest on late TDS payment worked out?
Interest on TDS is 1% a month for deducting late, from the date tax was deductible to the date it was deducted, and 1.5% a month for paying late, from the date of deduction to the date of payment. Any part of a month counts as a full month, and the interest must be paid before you file the quarterly statement.
These rates come from section 398(3) of the 2025 Act (section 201(1A) of the 1961 Act). Three points change the number more than people expect:
- Late-payment interest runs from the date of deduction, not from the 7th of the next month when the tax was due.
- CPC-TDS counts calendar months, so a payment one day late can cost two months of interest.
- If the payee has already filed a return including the income and paid the tax on it, 1% interest for late deduction runs only up to the date the payee filed that return. Both Acts require an accountant's certificate for this.
Example. Bluepeak deducted ₹20,000 of TDS on a contractor's bill on 18 August 2026. The tax was due by 7 September 2026, but it was paid on 12 October 2026. August, September and October each count, so interest is 1.5% × 3 months = 4.5%, or ₹900. Had it been paid by 7 September, there would be no interest at all.
When does the section 461 (271H) penalty apply?
The Assessing Officer can levy a penalty of ₹10,000 to ₹1,00,000 for not filing a TDS or TCS statement on time, or for filing incorrect information, under section 461 of the 2025 Act (section 271H of the 1961 Act). It comes on top of the late fee.
There is no penalty for late filing if you prove that you paid the tax, the late fee and the interest, and filed the statement within one month of its due date. Two limits apply:
- The one-month window replaced a one-year window from 1 April 2025, so older advice about "filing within a year" no longer holds.
- The protection covers late filing only. Incorrect information, such as a wrong PAN or amount, can still attract the penalty, so fix errors through a correction statement.
How to pay the TDS late fee and interest before filing
You pay the late fee and interest through a TDS challan on the income tax e-filing portal before filing the statement, then quote that challan in the statement. Under the 1961 Act the challan has a "Fee under section 234E" field; under the 2025 Act the fee is entered as "Fee under section 427".
- Log in with your TAN and go to e-File, then e-Pay Tax.
- Select the Act that applies: the 1961 Act for FY 2025-26 and earlier, the 2025 Act from tax year 2026-27.
- Click New Payment, then Proceed on the Pay TDS/TCS tile (minor head 200).
- Enter the deductee type and nature of payment, then fill in the interest and the late fee in the breakup.
- Pay through net banking or another listed mode, and keep the challan details.
- Prepare the statement with the challan quoted against the fee and interest, and file it.
If you file without paying, CPC-TDS works out the fee when it processes the statement and raises a demand. You then pay through the Pay Outstanding Demand tile (minor head 400) and tag the challan through an online correction on TRACES, entering the fee in the "Levy" column. For 1961 Act statements, a demand that stays unpaid also carries interest under section 220(2).
Changes in 2025 and 2026 that affect TDS defaults
Three changes alter the cost of a late TDS return. The penalty-free window shrank to one month from 1 April 2025. The Income-tax Act 2025 applies from 1 April 2026 with new form and section numbers. And TCS statements from tax year 2026-27 are due on the 31st, not the 15th.
- Which Act applies. Statements for FY 2025-26 and earlier, including Q4 due on 31 May 2026, stay under the 1961 Act, its forms and section 234E. Section 536 of the 2025 Act continues the 1961 Act for proceedings relating to those years.
- New form numbers. Form 24Q is now Form 138, 26Q is 140, 27Q is 144 and 27EQ is 143, with rule 219 of the Income-tax Rules 2026 setting the due dates.
- TCS dates. A Form 143 for the April to June 2026 quarter was due on 31 July 2026. Under the old rule it would have been due on 15 July.
- Same amounts. The ₹200 fee, the 1% and 1.5% rates and the ₹10,000 to ₹1,00,000 penalty are unchanged.
Common mistakes with TDS late fees and interest
Most avoidable TDS costs come from counting from the wrong date or paying under the wrong head.
- Counting late-payment interest from the 7th instead of the date of deduction.
- Assuming one day late means one day of interest. Calendar months can make it two.
- Filing the statement without paying the fee, and then facing a demand plus interest on it.
- Choosing the wrong Act on e-Pay Tax, so the challan does not match the statement.
- Expecting the fee to be waived. TRACES has no waiver option for it.
- Quoting a wrong TAN on the challan. Check it with the TAN verification tool before you pay.
Employers paying salaries should also check PF and ESI with the PF and ESI calculator, and businesses with GST should keep the GST late fee calculator in view, because GST has its own separate fee.
How Ofin can help
Ofin's outsourced accounting team works out TDS on your payments, prepares challans for deposit by the 7th, files Forms 138, 140, 143 and 144 each quarter, and prepares TDS certificates, for a fixed fee. We also clear older 1961 Act defaults: paying the fee under the right head, tagging challans on TRACES and filing correction statements. To see whether your business also needs a tax audit, use the audit applicability checker.
