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.

2 thoughts on “Interests & Penalties

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