Interest on income tax u/s 234A, 234B, 234C with Examples. Where an assessee fails to pay advance tax or defers the payment of advance tax on specified date, he shall be liable to pay interest u/s 234B & 234C. For making default in furnishing the IT return, Interest U/s Section 234B – For making default in payment of advance tax, Interest U/s Section 234C – For deferment of advance tax, Time intervals for payment of advance tax are as follows etc.
Interest on income tax u/s 234A, 234B, 234C
It’s very common to impose penalties if a rule is not obeyed correctly. It’s a known fact that ” ignorance of law is not excused “
It’s the responsibility of every citizen to pay the tax dues on his income within the time limit in accordance with the provisions laid in income tax act 1961 , read with the applicable rules & notifications, circulars.
If you make any delay in remitting the tax amount or make default in furnishing the return of income or incorrect calculation of tax which results in short fall of tax amount paid to department then there are some penal provisions in income tax act u/s 234A , 234B , 234C. Here I’m discussing a few lines about these provisions.
Generally income tax amount is paid as two types. They are
1. Advance tax.
2. Self Assessment Tax.
Of the amount of tax payable exceeds 10000 then one needs to pay advance tax on regular intervals as said in the act.
And self assessment tax is the balance amount of tax payable after deducting the advance tax paid from your total tax liability.
A). Section 234A : For making default in furnishing the IT return :
Condition: Where a person, who is required to furnish return of income –
- a) fails to furnish a return; or
- b) furnishes it after the due date specified u/s 139(1).
On the amount of tax determined u/s 143(1) or on regular assessment as reduced by advance tax paid and tax deducted or collected at source, if any.
1) Penalty :
Every assessees who’s liable to pay tax for an year should remit the amount of income tax and and furnish the tax return within due dates as specified by section 139(1).
If the return of income for any Assessment year is furnished after the due date specified in section 139(1) or is not furnished the assessee shall be liable to pay simple Interest @ 1% for every month or part thereof from the due date of filing of return to the date of furnishing of return, on the tax as determined u/s 143(1) or on regular assessment as reduced by TDS or advance tax paid or tax relief’s, if any, under Double Tax Avoidance Agreements with foreign countries.
2) Period of calculation :
This penal interest should be paid for the period commencing from the due date of filing the return to actual submission of return or till the date of best judgement assessment if he has not submitted the return of income.
Example
Mr. Kapoor is a doctor. His tax liability for the financial year 2013-14 amounted to Rs. 8,400. The due date of filing the return of income in his case is 31st July, 2014. On 5th August, 2014 he paid tax of Rs. 8,400 and filed his return of income. Will he be liable to pay interest under section 234A?
Answer
Interest under section 234A is levied for delay in filing the return of income. The due date for filing the return of income in the case of Mr. Kapoor is 31st July, 2014 and he has paid the tax and filed the return on 5th August 2014. Hence, he will be liable to pay interest under section 234A on the outstanding tax liability (provisions relating to rate of interest, period of levy of interest and amount liable to interest are discussed later).
B) Section 234B – For making default in payment of advance tax :
Where an assessee fails to pay advance tax or defers the payment of advance tax on specified date, he shall be liable to pay interest u/s 234B & 234C.
1) As per this section assessee is liable to pay interest @ 1% for every month or part of a month If the total amount of advance tax paid and TDS is lease than 90% total tax liability for the previous year.
Amount liable for interest
Interest under section 234B is levied on the amount of unpaid advance tax. If there is a shortfall in payment of advance tax, then interest is levied on the amount by which advance tax is short paid. The amount of unpaid/short paid advance tax is computed as follows :
| Particulars | Amount |
| Assessed tax
|
XXXXX |
| Less : Advance tax paid (if any) | (XXXXX) |
| Amount of unpaid/short paid advance tax | XXXXX |
Assessed tax means the amount of tax as determined under section 143(1) and where regular assessment is made, the tax on total income as determined under such regular assessment as reduced by tax deducted/collected at source, relief/deduction of tax claimed under various sections like sections 90/90A/91 and tax credit claimed under section 115JAA/115JD.
2. Period for calculation :
This interest should be calculated and paid for a period commencing on the 1st day of April of the assessment year to date of determination of total income u/s 143 or date of regular assessment u/s 143. This would be calculated on the amount of tax determined under this sec less advance tax TDS paid on thereof.
Example
Mr. Khushal is running a provision shop. Tax liability of Mr. Khushal for the year is Rs. 38,400. He has not paid any advance tax till 31st March. Entire tax was paid by him at the time of filing the return of income. Will he be liable to pay interest under section 234B?
Answer
Interest under section 234B is levied in following two cases:
- When the taxpayer has failed to pay advance tax; or
- Where the advance tax paid by the taxpayer is less than 90% of the assessed tax.
As per section 208 every person whose estimated tax liability for the year is Rs. 10,000 or more, shall pay his tax in advance in the form of “advance tax”.
The tax liability of Mr. Khushal is Rs. 38,400 (i.e., not less than Rs. 10,000), thus, he is liable to pay advance tax. However, he has not paid any advance tax and, hence, he will be liable to pay interest under section 234B (provisions relating to period of interest, rate of interest and amount on which interest is levied are discussed in later part).
C). Section 234C – For deferment of advance tax :
Section 234C mandates periodic payment of tax during the year. If you fail to pay the advance tax as per the regular time intervals said by the act then sec 234C comes into picture.
Time intervals for payment of advance tax are as follows :
1) If the assessee fails to pay the advance tax as per above stated slabs then he is liable to pay 1% p.m. for a period of 3 months for every deferment.But, for last instalment on 15th March, interest would be 1% for 1 month only.
2) Interest is calculated on the difference between the amount paid and amount of payable.
| Status | By 15 th June | By 15 th Sept. | By 15 th Dec | By 15 th March |
| Non-Corporate taxpayers | Nil | Upto 30% of advance tax | Upto 60% of advance tax | Upto 100% of advance tax |
| Corporate taxpayers | Upto 15% of advance tax | Upto 45% of advance tax | Upto 75% of advance tax | Upto 100% of advance tax |
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