Every person who earns income chargeable to tax should file its income tax return with the Income-tax Department before the due date and pay the taxes as applicable for the financial year. If any person fails to do so, such person shall be liable to pay interest as imposed by the Income Tax Act. Under the Income Tax Act, interest is imposed under three subsections of Section 234, viz., 234A, 234B, and 234C.
Interest under section 234A
When is interest under section 234A imposed?
As specified above, every person is liable to file the income tax return before the due date as applicable for the financial year. If any financial year, a person fails to file the income tax return or files the return of income after the due date, such person shall attract interest at the rate of 1% per month simple interest from the end due date till the month the return is filed.
Interest shall be calculated on total income tax payable after deducting advance tax paid, tax deducted at source, any rebate available, or any other tax credit available.
If Mr. J is liable to pay a tax of Rs 20,000/- for FY 2018-19, the return filing due date for which is 31st July 2019. If Mr. J pays the tax and files his return of income on 31st October, he shall be liable to pay interest at 1% for 3 months on total tax. The interest amount shall be Rs 600/-
Interest under section 234B
If any person has a tax liability of Rs 10,000/- or more, such person shall have to pay advance tax. If any person who is liable to pay advance tax fails to pay it or pays it but the amount of advance tax paid is less than 90% of the total income tax liability for the financial year, such person shall be liable to pay interest under section 234B. Interest under this section shall be calculated at 1% per month and part thereof of the assessed tax. The assessed tax shall be calculated as total tax liability as reduced by any advance tax paid, and TDS deducted or any other rebate or tax claims available.
If Mr. J is liable to pay an income tax of Rs 20,000/- for FY 2018-19 and he has not paid any advance tax for the said financial year and files his return of income on 31st July 2019 along with the tax liability. He shall be additionally liable to pay interest at 1% on tax amount of Rs 20,000/- for four months which shall amount to Rs 800/-
If Mr. J is liable to pay income tax of Rs 20,000/- for FY 2018-19 and he has paid Rs 17,000/- as advance tax for the said financial year. He files his return of income on 31st July 2019 along with the balance tax liability amounting to Rs 3,000/- In this case, Mr. J shall be liable to pay interest because even though he paid the advance tax, it is less than 90% of the total tax liability. Thus Mr. J shall be liable to pay interest of Rs 120/- which shall be 1% of Rs 3000/- balance tax liability for four months (Apr- July).
If Mr. J is liable to pay an income tax of Rs 20,000/- for FY 2018-19 and he has TDS credit of Rs 15,000/- He paid Rs 3,000/- as advance tax and balance 2,000/- was paid when filing of income tax return on 31st July. In this case, Mr. J shall be liable to pay interest. The assessed tax, in this case, shall be Rs 5,000/- (Rs 20,000 less Rs 15000) Mr. J should have paid 90% of the assessed tax as advance tax amounting to Rs 4500/- but paid only 3000/- Thus he shall be liable to pay interest under section 234B at 1% of Rs 2000/- for 4 months amounting to Rs 80/-
Interest under section 234C
Any person to whom provisions of advance tax apply, is expected to pay advance tax in specified installments. Schedule of Advance tax for taxpayers other than taxpayers opting for filing income tax return u/s 44AD is as follows:
|Due Date||Tax payable|
|On or before 15th June||Not less than 15% of the total tax liability|
|On or before 15th September||Not less than 45% of the total tax liability|
|On or before 15th December||Not less than 75% of the total tax liability|
|On or before 15th March||100% of the total tax liability|
If any person fails to pay advance tax on the specified due dates or pays less, shall attract an interest of 1% per month. Simply put as follows where; a person pays advance tax by
- 15th June which is less than 15% of the total tax payable, interest at 1% per month of the balance tax amount for three months shall be payable
- 15th September which is less than 45% of the total tax payable, interest at 1% per month of the balance tax amount for three months shall be payable
- 15th December which is less than 75% of the total tax payable, interest at 1% per month of the balance tax amount for three months shall be payable
- 15th March which is less than 100% of the total tax payable, interest at 1% per month of the balance tax amount for one month shall be payable
Mr. J is liable to pay income tax of Rs 1,00,000/- for FY 2018-19. As the tax liability is more than Rs 10,000/- Mr. J is liable to pay the tax liability in advance as specified. He pays the tax in installments as follows:
|Due Date||Advance Tax to be paid||Advance Tax paid||Excess / (Short) payment||Interest|
|15th June||15,000||10,000||(5,000)||5,000 * 1% * 3months = 150/-|
|15th September||45,000||35,000||(10,000)||10,000 *1% * 3 months = 300/-|
|15th December||75,000||60,000||(15,000)||15,000 *1% * 3 months = 450/-|
|15th March||1,00,000||90,000||(10,000)||10,000 *1% * 1 month = 100/-|
Total interest payable by Mr. J is Rs 1,000/- for FY 2018-19.
An exception to Senior Citizens
As the provisions of advance tax do not apply to the senior citizens not having income from Business and Profession, provisions of Section 234B and 234C shall also not apply to such senior citizens.
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