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Interest u/s 234A, 234B and 234C


Tony John 
posted on 08 October 2012



Income tax act is the charging statute of income tax in India.

 

The Act inter alia requires that Income tax returns be filed in time, advance tax be paid correctly and within the time prescribed under the act. In case the assessee fails to comply with the provisions of the Act, interest shall be chargeable under Sections 234A, 234B and 234C.

 

This article aims to give clarity on the computation of Interest under the above mentioned sections.

 

Interest under section 234A – Default in furnishing the return of Income:

 

If the assessee has not filed his return of income within the time limit prescribed, he shall pay simple interest @ 1% for every month or part of a month. It is calculated from the due date to date of furnishing the return.

 

Example:

 

A company files its return on 10th December. Due date under the Act is 30th September. Suppose the tax payable by the company is Rs.100000. Interest will be calculated as follows:

 

Tax = 100000

Delay = 3 months ie Oct, Nov, Dec.

Interest = 100000*3%= Rs.3000

 

Interest under section 234B- Default in payment of Advance Tax:

 

If an assessee has to pay advance tax and he has not paid such tax or if the advance tax paid by him is less than 90% of the assessed tax, he shall pay simple interest @ 1% every month or part of a month.

 

It is calculated from April 1st of the next financial year to date of determination of total income under Section 143(1). But, if regular assessment u/s. 143(3) is completed, then interest is chargeable up to the date of regular assessment.

 

Interest shall be calculated on the amount equal to the assessed tax in case no advance tax is paid, or on the amount by which the advance tax paid falls short of the assessed tax.

 

Example:

 

Mr. A has a tax liability of Rs.300000. TDS = Rs.50000

 

Advance tax payment details are as follows:

 

15th Sept 2011 Rs.30000

15th Dec 2011Rs.50000

15th Mar 2012 Rs.55000

Total Rs.135000

 

Interest u/s 234B is calculated as follows:

 

Tax on income        Rs.300000

Less: TDS               Rs.50000

 

Assessed  tax           Rs.250000

 

90% of assessed tax = 250000*90% = 225000

But Advance tax paid = Rs.135000

Hence 234B is attracted.

 

Shortfall = 250000-135000= Rs.115000

(Shortfall means difference between assessed tax and advance tax paid).

 

Interest under section 234 B = 115000*1%*4 months (Apr-July) = Rs.4600

 

Interest under section 234C – Deferment of Advance tax

 

Before we talk about Section 234C, we need to talk about the due dates of payment of advance tax.

 

Non-corporate assessee:

 

         Due date of Instalment

Amount payable

On or before the 15th September

30% of such advance tax.

On or before the 15th December

60% of total advance tax.

On or before the 15th March

 

100% of total advance tax

 

Corporate assessee:

 

             Due date of Instalment

                   Amount payable

On or before 15th June

15% of such advance tax

On or before the 15th September

45% of total advance tax

On or before the 15th December

75% of total advance tax

On or before the 15th March

100% of total advance tax

 

Section 234C is very simple.

 

If the advance tax paid is in underestimated instalments or if it s not paid at all, Section 234C gets attracted.

 

Interest is calculated on the difference between the instalment paid and instalment payable. This is how interest is calculated:

 

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.

 

Example:

 

Mr. A gives the following details:

Tax on total income = Rs. 500000

TDS = Rs.50000

 

Payment of advance tax:

 

15 Sept 2011      Rs.75000

12 Dec 2011       Rs.125000

15 Mar 2012      Rs. 200000

Total                   Rs. 400000

 

Solution:

 

Tax =                     Rs. 500000

TDS =                      Rs.50000

Assessed tax       Rs.450000

 

Interest is computed as under:

 

DUE DATE

AMOUNT PAYABLE

AMOUNT PAID

DIFFERENCE

INTEREST CHARGED

      14 Sept

30% of 4,50,000 = 135000

75000

60000

60,000*1%*3months = 1800

      12 Dec     

60% of 4,50,000 = 270000

200000

70,000

70,000*1%*3months = 2100

   15 Mar     

100% of 4,50,000 = 450000

400000

50000

50000*1%*1month =  500

 

TOTAL INTEREST U/S 234C

     Rs.  4400

 

I hope you found the article informative and had a good time reading it.  Please do post your comments.

 

Regards

Tony John


Published in Income Tax
Source : No Source Specified
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