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

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

On or before the 15th December

On or before the 15th March

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

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

Regards

Tony John

More »

##### Tony John on 08 October 2012
Published in Income Tax
Views : 744209
Other Articles by - Tony John