Income Tax regulations often come with strict repercussions in case not complying with the provisions of the Act. Under the Income-tax Act, different types of interests are levied for various kinds of delays / defaults. The Act 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 234 A, 234 B and 234 C.

 

All about Interest under Section 234 :

 

Interest under Section 234 A : Delay / Default in filing the return of income –

 

If the assessee has not filed his return of return within the time limit prescribed by the Law, he shall pay interest @ 1% (simple interest) for every month or part of a month. It is calculated from the period commencing on the date immediately following the due date of filing the return of income and ending on the date of furnishing the return of income, or in case where no return has been furnished, on the date of completion of the assessment under section 144.

 

Below are the due – dates for different class of taxpayers :

 

Types of Assessee	Due Date
An Individual or HUF or businesses not required to get audited	31-Jul-16
A Company	30-Sep-16
A person whose accounts are required to be audited	30-Sep-16
A working partner of a Firm whose accounts are required to be audited	30-Sep-16
An assessee who is required to furnish a report under section 92 E for international transaction	30-Nov-16
Any other person	31-Jul-16

 

Notes :-

 

• Interest under section 234 A is levied only in case where any tax liability is outstanding to be borne by the assessee as determined under section 143(1) and where regular assessment is made, the tax on total income as determined under such regular assessment as reduced by advance tax, tax deducted/collected at source, relief claimed under various sections like sections 90/90 A/91 and tax credit claimed under section 115 JAA / 115 JD. However, in cases of refund or income below taxable limit as per the Income Tax Slab, interest u/s 234 A shall not be attracted.

 

• While computing the period of levy of interest, part of a month i.e. fraction of a month is considered as full month.

 

For Example :

 

Mr. A has total tax liability of Rs 1,00,000 (net of advance tax paid & TDS if any) in Financial Year 15-16 and he files his return on the 15th December, 2016 instead of 31st July, 2016 of the Assessment Year 2016-17, when he was actually supposed to file his return as on individual. He is 5 months late in his tax payments. (The 15 day period in December is treated as a month).

Interest = 100,000 x 1% x 5 = Rs. 5,000

This Rs. 5,000 is the interest amount, over and above the tax amount that Mr. A will be paying in any case.

 

Interest under Section 234 B : Default in payment of Advance Tax –

 

As per Section 208 of the Act, advance tax shall be payable by the taxpayer during the financial year if the estimated tax liability on the income of assessee in that respective financial year is ten thousand rupees (Rs. 10000) or more. Interest under section 234 B is levied in following two cases:

 

1. When the taxpayer has failed to pay advance tax though he is liable to pay advance tax; or

 

1. Where the advance tax paid by the taxpayer is less than 90% of the assessed tax.

 

Interest for default in payment of advance tax is levied @ 1% (Simple Interest) per month or part of a month. Interest is calculated on the amount of unpaid advance tax. If there is a shortfall in payment of advance tax, then interest is levied on the amount by which advance tax is short paid.

 

Interest is levied from the first day of the assessment year, i.e., from 1st April till the date of determination of income under section 143(1) or when a regular assessment is made, then till the date of such a regular assessment. In a case where the income is increased on account of assessment/re-computation, interest under section 234B will be levied on the differential amount from the first day of the assessment year till the date of assessment/re-computation. In a case where and application is made to Settlement Commission, interest under section 234B will be levied on the differential amount from the first day of the assessment year till the date of making the application. Further, if the income as declared in the application is increased by the Settlement Commission, interest under section 234B will be levied on the differential amount from the first day of the assessment year till the date of such order. If as a result of rectification order of the Settlement Commission, income is increased / decreased, interest will also be increased / decreased accordingly. If the taxpayer has paid any tax before completion of assessment, then interest will be levied as follows:

 

• Upto the date of payment of self assessment tax, interest will be computed on the amount of unpaid advance tax.

 

• From the date of payment of self assessment tax, interest will be levied on the unpaid amount of advance tax after deducting the self assessment tax paid by the taxpayer.

 

 

For Example :

 

Mr. A is a businessman. His tax liability as determined under section 143(1) is Rs. 28,400. He has not paid any advance tax but there is a TDS credit of Rs. 10,000 in his account. He has paid the balance tax on 31st July i.e. at the time of filing the return of income. Will he be liable to pay interest under section 234B, if yes, then how much?

 

In this case, the tax liability (after allowing credit of TDS) of Mr. A comes to Rs. 18,400 (i.e. Rs. 28,400 – Rs. 10,000) which exceeds Rs. 10,000 and hence, he will be liable to pay advance tax. He has not paid any advance tax and hence, he will be liable to pay interest under section 234 B.

Interest under section 234B will be levied at 1% per month or part of the month. In this case, Mr. A has paid the outstanding tax on 31st July and hence, interest under section 234B will be levied for the period from 1st April to 31st July i.e. for 4 months. Interest will be levied on unpaid tax liability of Rs. 18,400. Interest at 1% per month on Rs. 18,400 for 4 months will come to Rs. 736.

 

Interest under Section 234 C : Deferment of Advance tax–

 

Let’s discuss first about the due dates of payment of advance tax.

 

Advance tax is to be paid in installments as given below:

 

Status	By 15th June	By 15th Sept.	By 15th Dec.	By 15th March
Non-Corporate taxpayers	Nil	Upto 30% of advance tax	Upto 60% of advance tax	Upto 100% of advance tax
Corporate taxpayers	Upto 15% of advance tax	Upto 45% of advance tax	Upto 75% of advance tax	Upto 100% of advance tax

 

Therefore, in case of deferment or short payment of advance tax in case, interest is to be calculated as follows in following two cases:

 

Non-Corporate assessee :-

 

Situation	Rate of Interest	Period of Interest	Amount on which Interest is calculated
If Advance Tax paid on or before September 15 is less than 30% of the Amount*	Simple interest @1% per month	3 months	30% of Amount* less tax already deposited before September 15
If Advance Tax paid on or before December 15 is less than 60% of the Amount*	Simple interest @1% per month	3 months	60% of Amount* less tax already deposited before December 15
If Advance Tax paid on or before March 15 is less than 100% of the Amount*	Simple interest @1% per month	–	60% of Amount* less tax already deposited before March 15

 

*Amount = Tax on total income less TDS less relief u/s 90 or 91 less tax credit u/s 115JD

 

Corporate assessee :-

 

Situation	Rate of Interest	Period of Interest	Amount on which Interest is calculated
If Advance Tax paid on or before June 15 is less than 12% of the Amount*	Simple interest @1% per month	3 months	15% of Amount* less tax already deposited before June 15
If Advance Tax paid on or before September 15 is less than 36% of the Amount*	Simple interest @1% per month	3 months	45% of Amount* less tax already deposited before September 15
If Advance Tax paid on or before December 15 is less than 75% of the Amount*	Simple interest @1% per month	3 months	75% of Amount* less tax already deposited before December 15
If Advance Tax paid on or before March 15 is less than 100% of the Amount*	Simple interest @1% per month	–	100% of Amount* less tax already deposited before March 15

 

*Amount = Tax on total income less TDS less relief u/s 90 or 91 less tax credit u/s 115JD

 

Therefore, section 234 C is very simple. If the advance tax paid is in underestimated installments or if it s not paid at all, Section 234 C gets attracted.

Interest is calculated on the difference between the installment paid and installment payable.

 

For Example :

Mr. A is running a small shop. His tax liability is Rs. 41,500. He has paid advance tax as given below:

• 15,000 on 15th September,
• 5,000 on 15th December,
• 18,400 on 15th March.

So the interest liability will be calculated as follows:

For the First instalment of 15th September:

Advance tax to be paid = Rs. 41,500 x 30% = Rs. 12,450

Mr. A has paid Rs. 15,000 so there is no shortfall and thus no interest is to be paid

For the Second instalment of 15th December:

Advance tax to be paid = Rs. 41,500 x 60% = Rs. 24,900

Total advance tax paid so far is Rs. 20,000 (Rs. 15,000 + Rs. 5000) so the interest on shortfall will be: (Rs. 24,900 – Rs. 20,000) x 3 months x 1% = Rs. 4900 x 3 months x 1% = Rs. 147

For the Third instalment of 15th March:

Advance tax to be paid = Rs. 41,500 x 100% = Rs. 41,500

Total advance tax paid so far is Rs. 3100 (Rs. 15,000 + Rs. 5000+ Rs 18,400) so the interest on shortfall will be: (Rs. 41,500 – Rs. 38,400) x 3 months x 1% = Rs. 3100 x 1 months x 1% = Rs. 31

Total Interest u/s 234B levied will be Rs. 147 + Rs.31 = Rs.178.

 

Notes :-

 

No levy of interest if shortfall in payment of advance tax is due to capital gains or winning from lottery, etc.

 

Interest under section 234C is not levied, if, the shortfall in payment of advance tax is due to failure to estimate the amount of capital gains or income referred to in section 2(24)(ix) (i.e. winning from lotteries, crossword puzzle, etc.) and the taxpayer pays the required advance tax on such income as a part of immediate following installments or till 31st March, if no installment is pending.

 

Start Filing your Return soon and plan your Taxes accordingly to avoid any interest payable u/s 234.

 

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