Interest

This query is : Resolved

CA Ysil Karunai (Querist)
Follow

16 November 2009 Dear sir,
When an assessee fails to pay tax within due date, the interest u/s 234A will attract. Further if he fails to pay 90% of advance tax, the interest u/s 234B will attract. Further in case of deferrement of advance tax, interest u/s 234C will hit.
Consequently, if the assessee pays more than tax liability by way of advance tax etc., he will get refund amount in excess of tax liabilty including interest.
My Argument:
1. The interest charged/refund is in line with Time Value of Money - Do you agree?
2. If yes, if the assessee pays exactly 100% of tax by way of advance tax (assume before completion of previous year), why the income tax act give any rebate/relief by considering time value of money, since because he paid 100% of tax amount within short period of time. Explain?

CA Deepak S

CA Deepak S (Expert)
Follow

17 November 2009 Think like this. If you are income is accruing daily, your liability to tax also accrues daily and I think that's the logic behind TDS. Instead of paying tax on a daily basis, the ITD allows you to pay tax periodically. You are paying tax exactly a fixed percentage of your total income periodically. and not any excess amount. If you are paying excess amount as advance tax, it is your mistake.