Section 115P: Interest Payable for Non-Payment of Tax by Domestic Companies
Section 115P of the Income-tax Act, 1961 prescribed interest when a domestic company failed to pay dividend distribution tax (DDT) within the time allowed by Section 115-O(3). It imposed simple interest at 1% for every month or part of a month on the unpaid amount, starting immediately after the statutory due date and ending on actual payment.
What Section 115P Provides
Where the principal officer of a domestic company and the company fail to pay all or part of the tax on distributed profits referred to in Section 115-O(1) within the period allowed under Section 115-O(3), the principal officer or company, as applicable, is liable for simple interest at 1% for every month or part thereof on the unpaid tax. The interest period runs from the day immediately after the last day for payment until the tax is actually paid.
Meaning of Key Legal Terms
Domestic company
A domestic company generally means an Indian company or another company which, in respect of its income liable to tax in India, has made the prescribed arrangements for declaration and payment of dividends within India, as defined under Section 2(22A) of the 1961 Act.
Tax on distributed profits
Section 115-O imposed additional income-tax, commonly called dividend distribution tax, on specified dividends distributed by domestic companies during the periods to which the provision applied.
Principal officer
Section 2(35) defines the principal officer to include a secretary, treasurer, manager or agent of the authority, company, association or body, and certain persons connected with management or administration who are served the prescribed notice.
Month or part thereof
For Section 115P, even a fraction of a month in the period of default attracts interest for that month or part. The provision specifies simple, not compound, interest.
When Did DDT Become Due?
Under Section 115-O(3), the domestic company and its principal officer had to pay DDT to the Central Government within 14 days from the earliest of declaration, distribution or payment of the dividend. Section 115P interest began the next day if tax remained unpaid.
How to Calculate Interest Under Section 115P
Interest = Unpaid DDT x 1% x Number of months or parts of months of delay.
| Particular | Illustration |
|---|---|
| Unpaid historical DDT | Rs. 1,00,000 |
| Applicable monthly interest | 1% simple interest |
| Delay counted for illustration | 2 months or parts thereof |
| Interest payable | Rs. 2,000 |
Illustration only. Actual computation depends on the relevant due date, payment date, outstanding amount and law applicable to the transaction.
Effect of the Finance Act, 2020
The dividend tax regime shifted from company-level DDT to taxation of dividends in shareholders' hands for dividends declared, distributed or paid on or after 1 April 2020. Consequently, Section 115P should not be presented as imposing interest on a new DDT liability for those dividends. The separate withholding tax rules, including Sections 194 and 195 where applicable, must be considered for subsequent distributions.
Section 115P and Section 115Q
Section 115P deals with interest on late payment of historical DDT. Section 115Q addresses circumstances in which the company or principal officer is treated as being in default for non-payment. These provisions should be read with Section 115-O and the applicable amendments.
Legislative History
Section 115P was part of the Chapter XII-D regime governing tax on distributed profits. The rate was amended to 1% per month or part thereof by the Taxation Laws (Amendment) Act, 2003 (Act 54 of 2003), Section 4, with effect from 8 September 2003, replacing the earlier rate of 1.25%.
Frequently Asked Questions
Does Section 115P apply to dividends paid after 31 March 2020?
Not as interest on a new Section 115-O DDT liability, because DDT ceased to apply to dividends declared, distributed or paid on or after 1 April 2020.
Can interest still arise on older unpaid DDT?
Historical unpaid liabilities may require examination under the provisions applicable to the relevant period and any savings or transitional rules. The abolition of DDT should not automatically be treated as extinguishing an earlier valid liability.
Is Section 115P interest simple or compound?
The provision expressly prescribes simple interest at 1% for every month or part thereof.
Official Legal References
- Income Tax Department: Section 115P (2025 text, Hindi interface)
- Income Tax Department: Section 115-O
- Income Tax Department: Tax treatment of dividend
- Finance Act, 2020 (official PDF)
This article explains the historical provisions of the Income-tax Act, 1961 and is not a substitute for transaction-specific legal or tax advice. Updated 27 October 2026.