Income-tax Act, among others, requires:
- Return of tax is required to be filed within due date
- Advance tax is required to be paid as per prescribed schedule
Where an assessee fails to comply with these provisions, assessee is liable to pay interest under section 234A, 234B and 234C.
Following points are to be noted regarding calculation of interest, whether such interest is receivable from or payable to the Central Government (Rule 119A):
- Rounding off the amount on which interest is to be calculated
Amount on which such interest is calculated will be rounded off to the multiple of 100 by ignoring any fraction of 100. E.g., amount on which interest is to be calculated is ₹ 240 or ₹ 290, then it is to be rounded off to ₹ 200 by ignoring fraction of ₹ 40 or ₹ 90. - Rounding off the period for which interest is to be calculated
- When interest is calculated on monthly basis, any fraction of the month shall be taken as full month. E.g., Interest is to be calculated from 1st August to 5th December, then interest shall be calculated for 5 months.
- When interest is calculated on annual basis, any fraction of the month shall be ignored.
The provision of sec. 234A, 234B and 234C are enumerated here-in-below:
Sec. 234A: Delay in furnishing return of income
Applicability | Where a person, who is required to furnish return of income:
|
Amount | Tax liability – advance tax paid – TDS / TCS – any relief u/s 90 or 90A or 91 – MAT / AMT credit |
Rate | 1% (simple interest) |
Period from | The day immediately following the due date for furnishing return |
Upto | Date of furnishing return or where the return is not filed at all, upto date of completion of assessment u/s 144 |
- Due date of filing return: 31st July
- Actual Filed on: 15th September
- Tax Liability: ₹ 1,25,000/-
- TDS: ₹ 15,880/-
- Advance Tax: ₹ 9,100/-
- Tax paid on: 15th September
- Delay (in months) (A): 2 months
- Rate of interest (B): 1% p.m.
- Amount: ₹ 1,25,000 – ₹ 15,880 – ₹ 9,100 = ₹ 1,00,020/-
- Amount Rounded off (C): ₹ 1,00,000/-
Interest (A x B x C): ₹ 2,000/-
Sec. 234B: Default in payment of advance tax
Applicability | Where a person, who is required to pay advance tax –
|
Amount |
|
Rate | 1% (simple interest) |
Period from | 1st April of the assessment year |
Upto | Date of assessment order |
- Tax Payable on assessed income: ₹ 2,06,700
- Advance tax paid: ₹ 1,68,000
- Tax deducted at source: ₹ 16,700
- Date of assessment order: 23rd Dec. of the A.Y.
- Assessed tax: ₹ 2,06,700 – ₹ 16,700 = ₹ 1,90,000
- 90% of above: ₹ 1,71,000
- Advance tax paid: ₹ 1,68,000
- Since advance tax paid by the firm is less than 90% of assessed tax, sec.234B is applicable
- Shortfall (Assessed tax – Advance tax paid) (A): ₹ 22,000
- Period of default [from April to Dec.] (B): 9 months
Interest u/s 234B (A x B x 1%): ₹ 1,980
Sec. 234C: Deferment of advance tax
Applicability | Assessee fails to pay the amount or pays lesser amount of advance tax |
Amount | Shortfall in payment of specified % of advance tax liability Advance Tax liability = Tax on the total income declared in the return filed by the assessee – TDS / TCS – Any tax credit available |
Rate | 1% (simple interest) |
Period | 3 months (1 month for last installment) |
Notes |
|
Sec. 201(1A): Delay in payment of TDS
Applicability | Where a person, responsible for deducting tax at source, fails to –
|
Amount | On the amount of such tax |
Rate |
|
Period | From the date on which such tax was deductible to the date on which such tax is actually paid. |
Sec. 206C(7): Delay in payment of TCS
Applicability | Where a person, responsible for collecting tax at source, fails to –
|
Amount | On the amount of such tax |
Rate | 1% (simple interest) |
Period | From the date on which such tax was collectible to the date on which such tax is actually paid. |
Sec. 234D: Excess Refund Granted
Applicability | Where any refund is granted to the assessee u/s 143(1) and
|
Amount | On the excess amount refunded |
Rate | ½% (simple interest) |
Period | From the date of grant of refund to the date of such regular assessment |