Section 115S of the Income-tax Act, 1961 provides for simple interest at 1% for every month or part of a month where tax on income distributed by a mutual fund or specified company under Section 115R was not paid by the statutory deadline. The provision is principally relevant to historical distribution-tax liabilities following the change in mutual fund taxation from 1 April 2020.
What is Section 115S?
Section 115S is an interest provision linked to the additional income-tax on distributed income under Section 115R. It addresses the failure to pay all or part of the applicable distribution tax within the time specified in Section 115R(3).
Explanation of the statutory provision
Where the person responsible for making payment of income distributed by the specified company or a mutual fund, and the specified company or mutual fund as applicable, fails to pay the whole or any part of tax referred to in Section 115R(1) or 115R(2) within the period allowed by Section 115R(3), the statute imposes simple interest:
- Rate: 1% for every month or part of a month.
- Base: The amount of distribution tax unpaid.
- Start: The day immediately following the last date on which the tax was payable.
- End: The date the tax is actually paid.
- Responsible persons: The responsible paying person and the specified company or mutual fund, as the statutory wording provides.
Definitions and related provisions
- Section 115R
- Historical additional income-tax on certain income distributions to unit holders. Under Section 115R(3), the tax was generally required to be deposited within 14 days of distribution or payment, whichever was earlier.
- Specified company
- The company referred to in clause (h) of Section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002; the relevant statutory definition governs.
- Mutual fund
- A fund falling within the applicable provisions of the Income-tax Act, including the framework of Section 10(23D) where relevant.
- Simple interest
- Interest calculated on the unpaid tax principal rather than compounded on previously accrued interest.
How is interest calculated under Section 115S?
Interest = unpaid Section 115R tax x 1% x number of months or parts of months of delay. Even a fraction of a month is counted as a month for this statutory calculation. The relevant due date and payment date should be established from the actual transaction and tax-payment records.
Illustrative calculation
Assume a mutual fund had a historical Section 115R distribution-tax liability of Rs. 2,00,000, and payment was delayed for two months and five days after the due date.
Months or parts of months = 3.
Interest = Rs. 2,00,000 x 1% x 3 = Rs. 6,000.
The illustration assumes the full tax remained unpaid for the entire period; partial payments and the precise statutory dates require a separate calculation.
What changed from 1 April 2020?
The Finance Act, 2020 shifted the taxation of mutual fund income distributions away from the former fund-level distribution tax system. In general, distributions made from 1 April 2020 are taxable in the hands of unit holders under the applicable rules, and tax deduction at source may arise under Section 194K where its conditions are met. The precise treatment depends on the recipient, the character of the receipt, applicable rates and the relevant tax year.
Consequently, Section 115S should be read as a provision dealing with delayed payment of tax that was payable under Section 115R, rather than as a new charge on post-March 2020 mutual fund distributions. Historic arrears and recovery proceedings may still require consideration of the law applicable to the original distribution.
Legislative history
The interest rate was changed to 1% per month or part of a month by the Taxation Laws (Amendment) Act, 2003 (Act 54 of 2003), with effect from 8 September 2003, replacing the earlier rate of 1.25%. The reference to the specified company was introduced through the Finance Act, 2003 (Act 32 of 2003), with effect from 1 April 2003. These historical amendments help interpret older liabilities.
Frequently asked questions
Does Section 115S impose interest on all mutual fund distributions today?
No. It concerns delayed payment of tax payable under Section 115R. The fund-level distribution tax regime was discontinued for distributions after 31 March 2020.
What is the rate of interest under Section 115S?
The statutory rate is simple interest of 1% for each month or part of a month on unpaid Section 115R tax.
When does interest begin?
It begins on the day immediately after the last day on which the relevant tax was payable and continues until actual payment.
Can an old unpaid liability still attract Section 115S interest?
Potentially yes, where tax was validly payable under Section 115R and remained unpaid. The facts, relevant period and any applicable proceedings must be checked.
Official legislation and resources
- Income-tax Act, 1961 - Income Tax Department
- Finance Acts - Income Tax Department
- Income Tax Department - Tax Information Services
- India Code - Central legislation
This article explains the statutory framework and historical operation of Section 115S. For a specific liability, check the law applicable to the distribution date and subsequent amendments, notifications and judicial decisions.