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

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

Paying income tax for the income earned and filing income tax returns is the duty of every citizen of India. Your taxes are a significant source of revenue for the government, which it uses for critical public programs and services. It is an excellent practice to maintain and also helps you recover TDS payments.
There are tax reduction and saving provisions with a term plan or a life insurance plan to reduce your tax amount. With proper planning of maintaining and paying tax, one can avoid paying additional interest. However, if not done so on time, you might end up delaying your payments. The interest rates for various defaults are listed under Section 234A, Section 234B, and Section 234C of the IT (Income Tax) Act. 



Section 234A: Interest for defaults in filing Income Tax Return


The interest imposed for the delay in filing the Income-tax Return comes u/s 234A of the Income Tax Act, 1961. If the taxpayer file his income tax return after the due date specified by the authorities, interest u/s 234A will be imposed.

For example, Mr X has an outstanding tax payable amount of Rs. 3,00,000, including advance tax and TDS. Now, he files his returns two months after the due date. He is hence, liable to pay interest for two months. The interest will thus be:
3,00,000 X 1% X 2 = Rs.6,000
Mr X will now pay additional Rs. 6,000. If he doesn't pay the tax even further, an interest of 1% will be added every month until the tax is paid.

Rate of interest:

Interest u/s 234A is levied at 1% per month or part of a month. Therefore, if the taxpayer files a delayed return, then he is liable to pay interest at 1% per month or for the part of a month (that is because a fraction of a month is considered a whole month).

Period of levy of interest:

Interest u/s 234A starts right after the due date of filing the return of Income and ending on the date of filing the Income Tax Return. In cases where no return is filed, the interest starts to aggregate until filing the return of income.

Amount on which Interest to be levied:

If the delayed return is filed, interest shall be charged on the tax amount on the total taxable income as determined u/s 143(1), and where a regular assessment is made, on the tax amount on the total taxable income determined assessment, and further reduced by;

  1. Advance tax paid by the taxpayer;
  2. TDS deducted, or TCS collected at source;
  3. Any other relief of tax allowed

Section 234B: Interest for defaults in Advance tax payment


Interest u/s 234B is imposed in the following two cases; 

1) If the taxpayer has not paid advance tax on time and his estimated tax liability for the assessment year is more than Rs. 10,000, or 
2) If the taxpayer has paid less than 90% of the tax assessed, the tax amount as assessed u/s 143(1) and where regular assessment is made, the tax on the total income is determined under such regular assessment.

Rate of interest:

Interest u/s 234B is levied at 1% per month or for the part of a month. Hence, in case of default in payment of advance tax, the taxpayer is liable to pay simple interest at 1%/month or part of a month (that is because a fraction of a month is considered a whole month).

Period of levy of interest:

Interest u/s 234B is imposed from the very first day of the assessment year till the date of determination of tax payable under section 143(1) or when a regular assessment is made. Suppose the income is the increased basis on the evaluation or re-computation. Here, the interest is levied on the differential amount from the first day of the assessment year till the assessment date.

Amount on which Interest to be levied:

The taxpayer is liable to pay the interest amount on the tax payable as follows;

  1. If the taxpayer has not paid advance tax, on the assessed tax, or
  2. If the taxpayer has [aid advance tax but has paid advance tax less than 90% of the total assessed tax, on the Amount by which the advance tax paid as aforesaid falls short of the assessed tax.

Section 234C: Late Payment of Advance tax or Interest for deferment of advance tax


Interest u/s 234C is levied in case of postponement of different instalments of advance tax in the following circumstances:

1) For the taxpayers other than those who have opted for presumptive taxation scheme u/s 44AD or 44ADA, interest shall be levied-
  1. If the advance tax paid for the year on or before the 15th day of June is less than 12% of the total tax payable on the assessed income for the year,
  2. If the advance tax paid for the year on or before the 15th day of September is less than 36% of the total tax payable on the assessed income,
  3. If the advance tax paid for the current year on or before the 15th day of December is less than 75% of the total tax payable on the assessed income for the year, and
  4. If the tax paid for the current year on or before the 15th day of March is less than 100% of the total tax due on assessed income for the year.
2) For taxpayers who have opted for a presumptive taxation scheme u/s 44AD or 44ADA, interest shall be imposed if the advance tax paid on or before the 15th day of March is less than 100% of the tax due on assessed income.

Late payment interest under this Section is also levied at the rate of 1% on the outstanding amount, starting from the dates listed above until the date of tax payment.

Interest is calculated for taxpayers who haven't opted for the presumptive payments option as follows;


Period of Amount on which
 Interest Rate
Interest Period
Amount on which interest will be levied
If Advance Tax deposited on or before 15th June is less than 15% of the total tax amount*
Simple interest @1% per month
Three months
15% of Amount* less advance tax already paid before 15th June
If Advance Tax deposited on or before 15th September is less than 45% of the tax payable amount*
Simple interest @1% per month
Three months
45% of Amount* less tax already deposited before September 15
If Advance Tax deposited on or before 15th December is less than 75% of the Amount*
Simple interest @1% per month
Three months
75% of Amount* less tax already deposited before December 15
If Advance Tax deposited on or before 15th March is less than 100% of the tax payable amount*
Simple interest @1% per month
Three months
100% of Amount* less tax already paid before 15th March
 
 *Amount = Tax payable on assessed income less TDS less relief u/s 90 or 91 less tax credit u/s 115JD

Rate of Interest:

Interest u/s 234C is levied at 1% per month or part of a month. Therefore, in case of short payment/ non-payment of individual instalments of advance tax, the taxpayer shall be liable to pay interest at 1% per month or for the part of a month (that is because a fraction of a month is considered as a whole month).

Period of levy of interest:

Interest under section 234C is levied for 1 month in the short payment of the last instalment and 3 months in the short payment of 1st, 2nd and 3rd instalments.

Amount on which Interest to be levied:

The interest will be calculated on the Amount of shortfall of advance tax of respective individual instalments in case of shortfall therein.

Conclusion
It is essential to know details about interest under the above sections, but what is more important is keeping track of due dates of paying tax and making payments on time. There are always life insurance and other investments that add value to your savings for reducing your tax liability.

FAQs

1. What are the consequences of delay/non-payment of Income-tax?
Some interests are urged upon the taxpayer if there is a delay/ non-payment of Income-tax. The interest will be levied under sections 234A, 234B and 234C of the Income Tax Act.

2. What is meant by Advance tax?
Advance tax is termed as income tax paid in advance, which requires to be paid in the same year of income earned. The taxpayer is liable to pay advance tax if his total tax liability in a financial year is more than Rs.10,000.

3. How is interest penalty calculated u/s 234A?
Interest Penalty = Outstanding Tax amount X 1% X Number of months (delayed), where part of the month is considered as a whole month. For example, 3 months and 10 days, will be considered as 4 months.

4. What is meant by assessed tax payable?
Assessed tax is the amount of tax payable as calculated under section 143(1), and where regular assessment is made for the year, the tax on the total income determined under such regular assessment.

 
For more information on this visit www.taxaj.com.


Posted by Pooja
Team Taxaj


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