Taxpayers need to be careful when it comes to due dates for tax payments and filing of returns in order to not attract hefty penalties. In today’s article, we are going to explain provisions related to such penalty interest under sections 234A, 234B, and 234C of the Income Tax Act, 1961 in detail for your better understanding. So, without further ado let’s get started. Happy reading!!
Section 234A: Interest for delayed return filing
Are you late for filing your return of income? If yes, then you have your exposure to the penal section covered by 234A. It is generally imposed when the assessee furnishes his return of income after the due dates prescribed i.e., filed a delayed or late return.
The Calculation of Interest under this section is made as follows:
Tax as per the Return of Income * Rate* Period
Where in; Tax as per RoI = Tax after adjustment of Advance Tax, TCS, TDS, MAT Credit, any relief
Rate = 1% per month or part of the month
Period =Day immediately after the prescribed due date of return filing
Calculating interest penalty under 234A:
For example:
Mr. X has a total tax outstanding of Rs. 2,00,000 (Including net advance tax and TDS) but he does not file his return on the due date. He files it after 6 months. As per section 234A, he’s liable to pay penalty interest as follows:-
Interest = 2,00,000 X 1% X 6 = 12000
Mr. X will now have to pay Rs. 12,000
Please Note: Credit can be taken of the Self-Assessment Tax paid, if any, up to the due date of filing of return.
Section 234B: Interest for incomplete advance tax payment
Interest under this section comes into action when the Assessee has not done the payment of his advance tax dues fully. However, if he has made an advance tax payment of up to 90% or more of the total advance tax liability, then no penalty shall be levied under this section.
Calculation of Interest under this section is made as follows:
Short Advance tax * Rate* Period
Where in; Rate = 1% per month or part of the month
Period =April 1st of the Assessment Year till the date of actual payment
Calculating interest penalty under 234B of the Income Tax Act:
For example:
Mr. X must pay a total tax of Rs. 3,00,000 for the current fiscal year. The TDS deduction amounted to Rs. 1,92,650. On March 20, Mr. X paid Rs. 8,000 while the balance amount of Rs. 99,350 was paid on July 15. Let’s calculate the penalty now:
Assessed tax = Total Tax – TDS
= Rs. 300,000 – Rs. 1,92,650
= Rs. 1,07,350
Mr. X should have paid at least 90% of Rs. 1,07,350 as advance tax which amounts to Rs. 99,615, on March 31. However, Mr. X only made a payment of Rs. 8,000. Hence Mr. X will have to pay an interest penalty on the assessed tax.
So Mr. X has to pay:
Rs. 99,600 (rounded figure) x 1% x 4 months (till July) = Rs. 3984.
Hence Mr. X is liable to pay Rs. 3984, as a penalty interest of the assessed tax, under Section 234B.
Please Note: If the Income of the Assessee changes due to the processing of return under section 143(1) or scrutiny assessment, then the tax as per 143(1) or the assessed tax as per the assessment shall be taken into account rather than the tax determined at the time of filing of Return of Income.
Section 234C: Interest for deferred payment of advance tax installment(s)
Section 234C gets levied when an Assessee is liable to pay advance tax on his income but fails to comply with the same or has made a short payment of the advance tax. As per the Income Tax Act, advance tax needs to be deposited with the government on the below specified dates, if the payment gets deferred the interest shall be levied on the shortfall.
Specified Date | Specified % | Advance Tax Shortfall | Period |
On or before 15th June | 15% | 15% of the tax due on returned income (-) advance tax paid up to 15th June | 3 months |
On or before 15th September | 45% | 45% of the tax due on returned income (-) advance tax paid up to 15th September | 3 months |
On or before 15th December | 75% | 75% of the tax due on returned income (-) advance tax paid up to 15th December | 3 months |
On or before 15th March | 100% | 100% of the tax due on returned income (-) advance tax paid up to 15th March | 1 month |
Calculation of Interest under this section is made as follows:
Deferred amount * Rate* Period
Where in; Rate= 1% per month or part of the month
Period = 3 months for all installments except the last installment, for the last installment, 1 month shall be taken into account
Please Note: 234C does not apply in case the deficit is due to the following:
● Incorrect estimation of Income from Capital gains.
● Incomes described under section 2(24) (ix) i.e., lottery income, crossword puzzles, etc.
● Income from the head “Profits and Gains from Business and Profession” in the case where the Income arises for the first time.
To avoid hefty penalty payments timely tax payments, need to be done and returns should be filed before the due date. If you need any assistance or have any doubts related to the penalty interest leviable in your case please feel free to reach out to us. Our team of experts is always available to help you out.
