Interests & Penalties

Interest and Penalties Imposed by the IT Department- 234A, 234B, 234C and 234F.

Interest is levied for non-payment of advance tax on the scheduled time mentioned above. This penalty is paid along with the taxes due before income tax return filing.

Delay in filing of Tax Returns  [Section 234A]

  • Income Tax Return for a financial year has to be filed before prescribed due date. Failure to file a return within this prescribed time or not file at all will attract this Interest.
  • Interest will be calculated from the due date applicable for filing of return of the relevant financial year till the actual date of filing the return.
  • An interest of 1% per month or part of the month (simple interest) on the tax amount outstanding is charged.

Example:

Say, your total net tax payable is Rs 1,17,000 and you file your return on 15th September 2019 instead of 31st July 2019, the due date to file income tax return. You are now 2 months late in filing your return. (The 15 day period in September is treated as a month).

Interest = 1,17,000 x 1% x 2 months = Rs. 2,340.

This Rs. 2,340 is over and above the tax amount that you will be paying in any case.

Delay in payment of Advance Tax  [Section 234B]

Interest under Section 234B is applicable when

  1. The tax liability after reducing TDS for the financial year is more than Rs 10,000 and no advance tax has been paid.   OR
  2. The advance tax paid is less than 90% of ‘assessed tax’.[Assessed tax = Tax Payable – Relief – TDS – TCS]

In any one of the above cases, interest under Section 234B shall be applicable. Interest is calculated @ 1% on Assessed Tax. Part of a month is rounded off to a full month. The amount on which interest is calculated is also rounded off in such a way that any fraction of a hundred is ignored.

Example:

Assume that the total tax Mr X needs to pay for the financial year is Rs. 1, 50,000. A TDS of Rs 1, 35,627 was already deducted from his income. Mr X paid Rs 5,000 on 25th March and balance of Rs 9,373 he paid at the time of filing his return on 20th July.

Let’s check whether Mr X needs to pay interest under Section 234B :

First let’s calculate assessed tax. Assessed tax = Rs 1, 50,000 (total tax) – Rs 1, 35,627 (TDS) = Rs 14,373

Mr X should have paid at least 90% of the assessed tax i.e 90% of Rs 14,373 which is Rs 12,935 before 31st March. However, he paid only Rs 5,000. Therefore, Mr X is liable to pay interest under Section 234B.

Interest calculation

Rs 14,300(assessed tax, fraction of 100 ignored) – Rs 5000(Advance Tax) = Rs 9300

Rs 9300 x 1% x 4 months (April, May, June, July) = Rs 372.

Rs. 372 is the interest payable under Section 234B by Mr X.

Interest for default in payment of installment(s) of advance tax [Section 234C]

In case an assessee, other than assesse opting for income declaration under presumptive basis.

Who is liable to pay advance tax under Section 208, has failed to pay such tax or advance tax paid by such assessee on his current income on or before due dates mentioned in column 1 is less than the specified percentage mentioned in column 2 of table of tax due on returned income, then simple interest of 1% per month for the period specified in column 4 on amount of short fall, as per column 3 is levied under Section 234C.

Specified Date(1) Specified % (2)Short fall In Advance Tax (3)Period(4)
On or before 15th June 15% 15% of the assessed income (-) advance tax paid upto 15th June. 3 Months
On or before 15th September 45% 45% of the assessed income (-) advance tax paid upto 15th September. 3 Months
On or before 15th December 75% 75% of the assessed income (-) advance tax paid upto 15th December. 3 Months
On or before 15th March 100% 100% of the assessed income (-) advance tax paid upto 15th March. 1 Month

In case of assesses who declares his profit and gains under Section 44AD (1) or Section 44ADA (1), who is liable to pay advance tax under Section 208, has failed to pay such tax or advance tax by the assessee on or before 15th March is less than the tax due on the returned income then the assessee shall be liable to a simple interest of 1% per month for the amount of short fall from the tax due on the returned income.

Fee/Penalty for default in furnishing return of income [Section 234F].

Where a person required to furnish a return of income under section 139, fails to do so within the time prescribed in sub-section (1) of the said section, he shall pay, by way of fee, a sum of,—

  • Rs 5,000 – if the return is furnished on or before the 31st day of December of the assessment year.
  • Rs 10,000 – in any other case.

Note: If the total income of the person does not exceed Rs 5 Lakhs, the fee payable under this section shall not exceed Rs 1,000.

Advance Tax

What is Advance Tax?

Advance Tax is part payment of your tax liability before the end of the financial year. It is also known as ‘pay as you earn’ tax. These payments have to be made in installments as per the specified due dates by the income tax department.

Who should pay Advance Tax?

If total tax liability is Rs 10,000 or more in a financial year, then the person is liable to pay advance tax. Provisions of advance tax apply to all tax payers say salaried, freelancers, and businesses. 

Presumptive Businesses– Taxpayers who opt for presumptive scheme where business income is assumed at 8% (6% In case of digital transactions) of turnover, provided the turnover during the Financial year is less than Rs 2 crore are liable to pay advance tax in lump-sum, not in installment basis.

Exemption:

Senior citizens (aged 60 years or more), and do not run a business, are exempt from paying advance tax.

Computation and Due Dates for payment of Advance Tax.

An Assessee has to estimate his current income and pay advance tax there on.

For this purpose,

  1. Estimate the total income of current financial year
  2. Calculate tax on such Income (A)
  3. Calculate surcharge, relief, health & education cess, etc., as applicable (B)
  4. Calculate total tax i.e., (A+B)
  5. Deduct TDS/TCS/MAT Credit
  6. Calculate net tax payable.

If the resulting tax liability is more than Rs. 10,000 then you are required to pay advance tax on installment basis as per the following schedule:

For both individual and corporate taxpayers for the FY 2018-19

Due Date Advance Tax Payable( as % of Advance Tax Payable)
On or before 15th June 2018 15% of advance tax
On or before 15th September 2018 45% of advance tax as reduced by the amount paid in the earlier installment.
On or before 15th December 2018 75% of advance tax as reduced by the amount paid in the earlier installment.
On or before 15th March 2019 100% of advance tax reduced by the amount paid in the earlier installment.

For taxpayers who have opted for Presumptive Taxation Scheme – Business Income for the FY 2018-19

Due Date Advance Tax Payable
By 15th March 2019 100% of Advance Tax

Rebate

Rebate Under Section 87A FY 2018-2019 (AY 2019-2020)

You are eligible to claim tax rebate under this provision if you meet the following conditions:

  1. You must be a RESIDENT INDIVIDUAL; and
  2. Your Total Income, less Deductions, (under Section 80) is equal to or less than Rs 3,50,000.
  3. The rebate is limited to Rs 2,500. This means that if the total tax payable is lower than Rs 2,500, then that amount will be the rebate under section 87A. [This rebate is applied to the total tax before adding the Education Cess (4%)]

Examples for Rebate under section 87A allowed to Resident Individuals including Senior Citizens:

Total Income Tax payable before cess Rebate u/s 87A Tax Payable + 4% Cess
2,55,000 250 250 0
2,90,000 2,000 2,000 0
3,00,000 2,500 2,500 0
3,50,000 5,000 2,500 2,500+100=2,600
3,64,000 5,700 0 5,750+228=5,928

Relief

What is the meaning of relief under section 89(1)?

Tax is calculated on your total income earned or received during the year. If your total income includes any past dues paid in the current year i.e., arrears of salary or advance salary or arrears of family pension, you may be worried about paying a higher tax on such arrears as the tax slab rate of past years has less income tax rate as compared to current financial year.

To reduce the additional tax burden due to delay in receiving such income, relief under section 89(1) is provided.

How to calculate relief for the AY 2019-2020 (FY 2018-2019)?

Relief can be calculate by following the below steps :

S1Calculate tax payable of the previous year in which the  arrears/advance salary is received by considering:
(a)Total Income inclusive of additional salary  
(b)Total Income exclusive of additional salary.
S2  Compute the difference of the tax calculated in Step 1 i.e.,(a) – (b)
S3  Calculate the tax payable of every previous year to which the additional salary relates:
(a)On total income including additional salary of that particular previous year.  
(b)On total income excluding additional salary.
S4   Calculate the difference between (a) and (b) in Step 3 for every previous year to which the additional salary relates and aggregate the same.
S5Relief under section 89(1) = Amount calculated in Step 2 – Amount calculated in Step 4

Let’s take an example :

Mr. A aged 64 years total income of Rs. 10,20,000/- for Financial Year 2018-2019 (Assessment Year 2019-2020) and received arrears of Rs. 1,03,000/- for Financial Year 2010-11 (Assessment Year 2011-12). The total income for Financial Year 2010-11 is Rs 7,10,000.

Assessment Year Slab rates of income-tax  
  For resident individuals of the age of 60 years or more at any time during the previous year   For other resident individuals
  Slabs Rate Slabs Rate
2011–12 Upto  Rs 2,40,000 Nil Upto Rs 1,60,000 Nil
  Rs 2,40,001 – Rs 5,00,000 10% Rs  1,60,001 – Rs 5,00,000 10%
  Rs 5,00,001 – Rs 8,00,000 20% Rs  5,00,001 –  Rs 8,00,000 20%
  Above Rs 8,00,000 30% Above  Rs 8,00,000 30%

Education cess@2% and secondary and higher education cess@1%

S1: Computation of tax payable by Mr. A for the A.Y.2019-20

Particulars Including arrears of salary Excluding arrears of salary
Current year salary 10,20,000 10,20,000
Add: Arrears of salary 1,03,000
Taxable Salary 11,23,000 10,20,000
Income-tax thereon 1,46,900 1,16,000
Add : Health and education cess @4% 5,876 4,640
Total payable 1,52,776 1,20,640

S2:  Difference of S1

Particulars Amount (rs)
Tax payable in A.Y.2019-20 on arrears:
Tax on income including arrears (a) 1,52,776
Less : Tax on income excluding arrears(b) (1,20,640)
Total 32,136

S3: Computation of tax payable on arrears of salary for A.Y.2011-12

Particulars   Including. arrears (Rs) Excluding. arrears (Rs)
Taxable salary 7,10,000 7,10,000
Add: Arrears of salary 1,03,000
Taxable salary 8,13,000 7,10,000
Tax on the above 97,900 76,000
Add: Cess@3% 2,937 2,280
Tax payable 1,00,837 78,280

S4: Difference of S3

Particulars Amount (rs)
Tax payable in A.Y.2011-12
Tax on income including arrears (a) 1,00,837
Less: Tax on income excluding arrears (b) (78,280)
Total 22,557

S5: Tax payable for A.Y.2019-20 after relief under section 89

Particulars Amount (rs)
Income-tax payable on total income including arrears of salary 1,52,776
Less : Relief under section 89 S2 – S4 i.e., (32,136 – 22,557) 9,579
Tax payable after claiming relief 1,43,197

Tax Rate

Rates applicable for the AY 2019-2020 (FY 2018-2019)

Individual, HUF, AOP, BOI, Artificial Juridical Person

Income Rate of Tax
Income up to Rs 2,50,000 No Tax
Income from Rs 2,50,001 – Rs 5,00,000 5 %
Income from Rs 5,00,001 – 10,00,000 20 %
Income more than Rs 10,00,000 30 %

Income tax slab for senior citizens (60 years to less than 80 years old)

Income Rate of Tax  
Income up to Rs.3,00,000 No Tax
Income from Rs.3,00,001 to Rs.5,00,000 5 %
Income from Rs 5,00,001 – 10,00,000 20 %
Income more than Rs 10,00,000 30 %

Income tax slab for senior citizens (80 years or more)

Income Rate of Tax  
Income up to Rs 5,00,000 No Tax  
Income from Rs 5,00,001 – 10,00,000 20 %
Income more than Rs 10,00,001 30 %
  • Surcharge:
    • 10% surcharge on income tax if the total income exceeds Rs 50 Lakhs but below Rs 1 crore
    • 15% surcharge on income tax if the total income exceeds Rs 1 crore
  • Health Cess: 1% cess on income tax including surcharge
  • Education Cess: 2% cess on income tax including surcharge
  • Secondary and Higher Education Cess: 1% cess on income tax including surcharge

Example

Particulars   Tax Liability
For first 2.5 Lakhs   0
From Rs.2,50,001 to Rs.5,00,000 =2,50,000*5%                12,500
From Rs.5,00,001 to Rs.10,00,000 =5,00,000*20%               1,00,000
Tax Liability   1,12,500
Health Cess =1,12,500*1%                 1,125
Education Cess =1,12,500*2%                  2,250
Secondary and Higher Education Cess =1,12,500*1%                 1,125
Total Tax Liability       1,17,000

Tax Credits

The Tax Credits schedule shows all the details of the tax deducted, collected, and deposited with the government against your PAN. The different types of Tax Credits are:

  1. Taxes Paid by you.
  2. Taxes Deducted at Source from your Income (TDS)
  3. Taxes Deducted from your Salary (Form 16)
  4. Taxes Collected at source from your Expense (TCS)

These details are shown in form 26AS. Form 26AS is your annual consolidated tax passbook containing all the details of tax that has been deposited against your PAN.
It usually contains tax deducted by your employer, banks, and advance-tax and self-assessment taxes paid by you.

Let us have look at the above types in detail and also what details are to be entered in the same.

  1. Taxes Paid by you:
    It is summary of the payment of advance-tax and tax on self-assessment.
    Fill out the details of payment and enter the challan details such as BSR Code of the bank branch (7 digits), date of deposit, challan serial No., and amount paid.
  2. Taxes Deducted at Source from your Income (TDS):
    It is summary of the tax deducted at source on income other than salary. Please furnish the details in accordance with Form 16A, Form 16B or Form 16C issued by the Deductor in respect of interest income, capital gains, rental income or any other sources of income.
    All the details such as Year of deduction, Amount credited, TDS deducted, TDS claimed in own hands in the current year, etc should be entered in this part of schedule.
  3. Taxes Deducted from your Salary (Form 16):
    It is summary of the tax deducted at source on salary. This contains details of tax deducted by your employer from your salary. It contains TAN number, name of your employer (present and former), employer wise break-up of the income chargeable under the head salary and tax deducted at source (TDS) by each of them.
    Please furnish the details in accordance with Form 16 issued by the employer(s) in respect of salary income.
  4. Taxes Collected at source from your Expense (TCS):
    It is summary of the tax payable by a seller which he collects from the buyer at the time of sale. The seller would have issued you Form 27D for the tax collected from you and deposited against your PAN. Section 206C of the Income-tax act governs the goods on which the seller has to collect tax from the purchaser.
    Fill out the details of tax collected at source on the basis of TCS certificates (Form No. 27D) issued by the Collector in this part of schedule.