The 1.5 Percent Monthly Clock: Interest on Late TDS Deposit Under Section 201(1A)

For deductors who collected tax at source in September 2026 but have not yet parked it with the exchequer, Monday, 13 October 2026 is not a neutral date on the calendar. It is another full month ticking over on the Section 201(1A) interest meter. Under the Income Tax Act, a company that deducts tax but deposits it late does not pay a flat penalty; it pays 1.5% per month, charged from the date of deduction to the date of actual deposit, with every part of a month counted as a whole month. That single drafting choice turns a six-day slip into a 3% charge. Tomorrow's watchlist is built around that clock, the statutory filings it feeds into, and the wider market backdrop against which treasurers are closing their October books.

This is the mechanism explained by the Income Tax Department in its guidance on interest for delayed payment of TDS and TCS. It is worth understanding precisely, because the arithmetic is counter-intuitive and the cost is almost always larger than finance teams assume. Our TDS calculator and advance-tax calculator can model the base deduction, but the interest overlay below is where most of the avoidable money is lost.

Statutory Deadlines

The headline deadline on the watch for Monday, 13 October 2026 is the GSTR-6 return for Input Service Distributors covering September 2026. Under Section 39(4) of the Central Goods and Services Tax Act, 2017, read with Rule 65, an Input Service Distributor must file GSTR-6 by the thirteenth day of the month following the tax period. For the September 2026 period, that falls on 13 October 2026. The same thirteenth-of-the-month cut-off applies to the GSTR-5 return for non-resident taxable persons.

But the deadline that gives this edition its name is quieter and more expensive: there is no "due date" on 13 October for late TDS at all, because the interest under Section 201(1A) is already running and compounds in monthly steps regardless of what the calendar says. The two limbs of the section work differently, and the distinction decides how much you owe:

The 1.5% limb is the trap. The clock starts on the date of deduction, not on the statutory deposit due date of the 7th of the following month, and "part of a month" is treated as a full month. A deductor who withholds tax on 5 September 2026 and remits it on 13 October 2026 is late by six days against the 7 October due date, but the interest is computed from 5 September. That span touches two calendar-counting months, so the charge is 2 x 1.5% = 3% of the tax, not a pro-rated fraction of a single month.

A worked example makes the sting concrete. Assume Rs 1,00,000 of TDS deducted on 5 September 2026:

That effective rate is not a typo. Because the statute anchors the count to the deduction date and rounds every part-month up, a short delay that merely crosses a month boundary carries two months of interest. This is exactly why finance desks are told to clear the TDS challan before, not after, the quarter closes, and why the department stresses that the interest must be paid before the TDS statement is filed. You cannot validate the quarterly return with the interest liability still outstanding.

That brings the second, hard date into view. The quarterly TDS statement for Q2 of FY 2026-27 (July to September 2026), filed in Form 24Q for salary deductions and Form 26Q for non-salary deductions, is due on 31 October 2026. Any Section 201(1A) interest on September deposits must be discharged and reflected before that statement goes in. Miss the statement date itself and a separate charge bites: the Rs 200-per-day late fee under Section 234E, which we examined in detail in our report on the quarterly TDS statement late fee. The 234E fee and the 201(1A) interest are cumulative, not alternatives, so a single lapse can attract both.

For the vocabulary behind these obligations, our glossary entries on TDS, Form 26AS and the financial year set out how the deducted amounts eventually surface in a taxpayer's credit statement and against which assessment year they are claimed.

Market Events

No RBI Monetary Policy Committee meeting, SEBI board meeting or scheduled central-bank event is confirmed for Monday, 13 October 2026. The most recent policy action remains the MPC's decision of 7 October 2026, when the committee raised the repo rate by 25 basis points to 5.50% in a unanimous vote, per the Reserve Bank of India's monetary policy communications. It was the first increase since February 2023, following four consecutive holds at 5.25% across February, April, June and August 2026, and the stance shifted from neutral to calibrated tightening. The next MPC review is scheduled for 2 to 4 December 2026.

The rate move matters for the TDS conversation in one direct way: the 1.5%-per-month interest under Section 201(1A) works out to 18% per annum, more than three times the 5.50% repo rate. No short-term borrowing facility a corporate treasury can access comes close to that cost, so there is never a rational case for "funding" operations by sitting on deducted tax. The gap between 5.50% and an effective 18% is the clearest signal on tomorrow's board.

For investors watching the broader market rather than the compliance calendar, the arithmetic of regular investing against this 5.50% policy backdrop is better explored through our SIP calculator than through any single day's events.

Earnings

No company results are confirmed in our editorial calendar for Monday, 13 October 2026, and we will not list an earnings schedule we have not verified against a filed exchange intimation. What is certain is structural rather than date-specific: the July-to-September 2026 reporting season coincides exactly with the Q2 TDS statement window closing on 31 October 2026. Every listed company that pays salaries, professional fees or contractor invoices is simultaneously a deductor facing the same 201(1A) clock described above.

That overlap is why audit committees treat the days around the 7th and the month-end of October 2026 as a live risk window. A company can report clean operating numbers and still carry an avoidable Section 201(1A) interest charge in its tax notes if a single large deduction, say TDS on a Rs 50 lakh vendor payment, slipped across a month boundary. At 1.5% per month, a two-month part-period on Rs 50 lakh is Rs 1,50,000 of pure interest, money that reduces reported profit for no operational reason.

When genuine result dates are confirmed by exchange filings, they will appear in a future edition. Until then, the disciplined watch item for tomorrow is internal: reconcile every September 2026 TDS deduction against its deposit challan before the 31 October 2026 statement, and clear any 201(1A) interest first.

FAQ

Why does a six-day delay in depositing TDS cost 3%, not a fraction of one month?

Because Section 201(1A) charges interest from the date of deduction, not the deposit due date, and treats any part of a month as a full month. A deduction on 5 September 2026 deposited on 13 October 2026 spans two counted months (5 September to 4 October, then the part-month to 13 October), so the charge is 2 x 1.5% = 3% of the tax, per the Income Tax Department's published guidance.

What is the difference between the 1% and the 1.5% interest limbs?

The 1% per month limb applies when tax was never deducted in the first place, charged from the date it was deductible to the date it is finally deducted. The 1.5% per month limb applies when tax was deducted but deposited late, charged from the date of deduction to the date of actual deposit. A deductor who both fails to deduct and then delays can face the 1% limb followed by the 1.5% limb.

When must the Section 201(1A) interest be paid?

The interest must be paid before the TDS statement for that quarter is filed. For deductions made in July to September 2026, the Form 24Q and Form 26Q statements are due on 31 October 2026, so any 201(1A) interest on those deductions must be discharged and reflected before the return is validated.

Is the Section 201(1A) interest a penalty I can get waived?

No. It is compensatory interest for the period the government was deprived of the tax, not a discretionary penalty, and it is charged automatically. A separate Rs 200-per-day late fee under Section 234E applies if the quarterly statement itself is filed late, and that fee is cumulative with the 201(1A) interest rather than an alternative to it.

How does the 18% annualised cost compare with the current repo rate?

The 1.5%-per-month interest equals 18% per annum, against an RBI repo rate of 5.50% set on 7 October 2026. The roughly 12.5 percentage-point gap means delaying a TDS deposit is one of the most expensive forms of implicit borrowing a business can take on, far above any formal credit line benchmarked to the repo rate.

Does the interest clock stop on weekends or holidays?

The statute counts calendar months from the date of deduction, so interest accrues continuously; weekends and holidays do not pause it. The only relief is that where a statutory due date falls on a holiday, the deposit made on the next working day is treated as on time for the due-date test, but the month-counting for 201(1A) still runs from the original date of deduction.

Where can I verify these rules myself?

The interest provisions sit in Section 201 of the Income Tax Act, 1961, available on India Code, and the department's plain-language summary is on the Income Tax Department website. The GSTR-6 due date flows from Section 39(4) of the CGST Act, 2017, also on India Code.