ICICI

Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More


Republished with all the latest updates.

In this article, we will discuss Interest under section 234A, 234B, and 234C with practical examples.

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

Income tax Act specifies certain time limits for filing Income tax returns to all the Assessee.

The Act inter alia requires that Income tax returns be filed in time, advance tax is 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.

Here is brief overview of the sections to be discussed in detail:

  • Default in filing of tax returns – Section 234A
  • Default in payment of Advance Tax – Section 234B
  • Deferment of Advance Tax – Section 234C

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.

Here the time limit prescribed means the time limits mentioned under section 139(1) i.e. 31st July in case of Individuals / HUF and 30th of September in all other cases.

Also, the interest under section 234A shall be charged from the date of the due date of the filing of return – till the date of the return filing along with payment of the tax.

However, no Interest u/s 234 A shall be charged where the tax payable is “NIL” or refund is available for the Assessee.

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.

Note: Advance Tax – It means you will be required to pay your tax based on the due dates given under the Income Tax Act. However, no advance tax is required to paid where tax to be paid is less than Rs. 10,000 or you’re senior citizen (not having any income from business or profession)

Tip to save Interest under section 234B – Pay at least 90% of your expected tax liability after TDS before 31st March.

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 installment paid and installment payable. This is how interest is calculated:

1% p.m. for a period of 3 months for every deferment.

But, for the last installment on 15th March, interest would be 1% for 1 month only.

Here it is important to note that – if the payment of the tax due is on account of –

  • Capital Gains
  • Winnings from lotteries, crossword puzzles, races (including horse races), card games and any other activity in the nature of gambling, betting etc.

and if the assessee has paid the amount of tax payable in respect of the above-mentioned income as part of the remaining installments of advance tax which are due or where no such installments are due, by the 31st March of the financial year, no interest shall be leviable in respect of such shortfall.

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

This article covers all the latest amendments. (Updated till June 2018)

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

Download the complete analysis of section 234A, 234B and 234C here

Calculator for Interest under section 234A, 234B, and 234C

Regards

Tony John

"Loved reading this piece by Tony John?
Join CAclubindia's network for Daily Articles, News Updates, Forum Threads, Judgments, Courses for CA/CS/CMA, Professional Courses and MUCH MORE!"






Category Income Tax, Other Articles by - Tony John 



Comments


update