Under Income Tax, different types of Interest are levied for various kinds of delays/defaults. For Income Tax Return late filing, Advance tax delayed payment and for short-payment of advance tax, there is Interest payable by the assessee, which is chargeable u/s 234A, u/s 234B, and u/s 234C respectively of Income Tax Act. Under this post, we will discuss Interest payable under section 234A/B/C of the Act.
Types of Interest u/s 234
There are 3 different Interests payable under section 234 of the Income Tax Act. The same is given as under-
- Interest under section 234A- Delay in Filing of Income Tax Return
- Interest under section 234B- Delay in payment of Advance Tax
- Interest under section 234C- Short payment of Advance Tax
Interest under section 234A
Income Tax Act had made a provision of Interest payment for late filing of Income Tax returns. Interest u/s 234A is calculated @ 1% for every month or part of the month on the amount of tax payable. This interest is calculated from the due date to the date of the actual filing of the Income Tax Return.
234A Interest Calculation
For the Interest calculation under section 234A, we can understand it with an example.
Example for Interest under section 234A
Mr. Kiyaan has failed to file his Income Tax Return on which the tax payable was Rs. 2,00,000. The due date was 31st July 2021 and he submits his Income Tax Return on 2nd December 2021. The Interest calculation will be as follow-
Tax Payable- Rs. 2,00,000.
Delay in filing of Return- From 31st July to 2nd December i.e 5 Months
Interest under section 234A- 2,00,000*1%*5= Rs. 10,000.
Also Read- What is the due date of the Income Tax Return Filing?
Interest under section 234B
Section 234B deals with the following two cases-
A) When the taxpayer has failed to pay advance tax though he is liable to pay advance tax
B) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax
Here assessed tax means Total Tax Liability -TDS (if any)
In both, the above cases the interest will be charged @ 1% for every month or part of the month, from 1st April to the month of return filing.
Also Read:- Advance Tax Payment Due Date- Know the deadlines
234B Interest Calculation
For the Interest calculation under section 234B, we can understand it with an example.
Example for Interest under section 234B
Mr. Kiyaan has a total tax liability of Rs. 1,20,000, while TDS due was Rs. 20,000. Advance Tax already paid Rs. 60,000.
Assessed Tax is Rs. 1,20,000-20,000=1,00,000
Now check 90% of balance tax liability, in our case it is 1,00,000*90%= 90,000.
A Shortfall of Rs. 30,000 (90,000 – 60,000)
Interest Payable u/s 234B– 30,000*1%* 4 Month (April to July)= 1200
The Interest is taken from April to July because July is the due date month of return filing and here we assumed that the assessee has filed its return in time.
Interest under section 234C
Section 234C deals with the delayed payment of advance tax installments.
| Due date | Advance Tax Liability | Rate of Interest |
|---|---|---|
| On or before 15th June | 15% of the tax due on the returned income or the amount of such advance tax paid | Simple Interest @ 1% per month or part of the month for 3 months |
| On or before 15th September | 45% of the tax due on the returned income or the amount of such advance tax paid | Simple Interest @ 1% per month or part of the month for 3 months |
| On or before 15th December | 75% of the tax due on the returned income or the amount of such advance tax paid | Simple Interest @ 1% per month or part of the month for 3 months |
| On or before 15th March | 100% of the tax due on the returned income or the amount of such advance tax paid | Simple Interest @ 1% per month or part of the month for 1 month |
However, no interest will be charged if the advance tax paid by the assessee on the current income, on or before the 15th of June and before the 15th of September is not less than 12% or 36% respectively of the tax due on the returned income, then the assessee shall not be liable to pay any interest on the amount of the shortfall on those dates.
234C Interest Calculation
For the Interest calculation under section 234C, we can understand it with an example.
Also Read:- Know the complete procedure and provision for advance tax payments
Example for Interest under section 234C
Mr. Kiyaan is an assessee whose income tax computed was Rs. 6,00,000.
He paid the advance tax as follow-
- 10th June- Rs. 30,000
- 15th September- Rs. 50,000
- 14th December- 25,000
- 15th March -30,000
Total Advance Tax Paid- Rs. 1,35,000
TDS- Rs. 1,20,000
Assessed Tax- Rs. 4,80,000 (6,00,000-1,20,000)
Interest under section 234C will be calculated on the basis of the difference between the advance tax paid and due.
Advance Tax Due
| Installments | Rate of Tax | Liability/due |
|---|---|---|
| 1st Installments | 15 % | 4,80,000*15%= 72,000 |
| 2nd Installments | 45% | 4,80,000*45%= 2,16,000 |
| 3rd Installments | 75% | 4,80,000*75%= 3,60,000 |
| 4th Installments | 100% | 4,80,000*100%= 4,80,000 |
Also Read- What is the Interest and Penalty for late filing of ITR
Difference
| Liability | Tax Already Paid | Difference |
|---|---|---|
| 72,000 | 30,000 | 42,000 |
| 2,16,000 | 80,000 | 1,36,000 |
| 3,60,000 | 1,05,000 | 2,55,000 |
| 4,80,000 | 1,35,000 | 3,45,000 |
Interest u/s 234C
42,000*1%*3= Rs. 1,260
1,36,000*1%*3= Rs. 4,080
2,55,000*1%*3= Rs. 7,650
3,45,000*1%*1= Rs. 3,450
Total Interest Liability u/s 234C= Rs. 16,440/-
Note- w.e.f. AY 2017-18, The taxpayers who opted for presumptive income taxation e.g. Section 44AD, Section 44ADA, Section 44AE have to pay the whole advance tax liability in one installment (100%) on or before the 15th March. They can also pay the entire amount by 31st March. If there is any shortfall, interest shall be levied @ 1% simple interest for 1 month or part of the month on the short amount.
Frequently Asked Questions
What is Section 234B and 234C?
Section 234B deals with the following two cases-
A) When the taxpayer has failed to pay advance tax though he is liable to pay advance tax.
B) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax.
Section 234C
If any taxpayer failed to pay and comply with the advance tax payments, there are some consequences in the form of an Interest Penalty. Here section 234C deals with interest to be levied on defaulters of advance tax installment payments.
How is interest calculated on 234a?
Income Tax Act had made a provision of Interest payment for late filing of Income Tax Returns. Interest u/s 234A is calculated @ 1% for every month or part of the month on the amount of tax payable. This interest is calculated from the due date to the date of the actual filing of the Income Tax Return.
When 234B and 234C is applicable?
Section 234B deals with the following two cases-
A) When the taxpayer has failed to pay advance tax though he is liable to pay advance tax.
B) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax.
Section 234C
If any taxpayer failed to pay and comply with the advance tax payments, there are some consequences in the form of an Interest Penalty. Here section 234C deals with interest to be levied on defaulters of advance tax installment payments.
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Disclaimer: The information contained in the above article are solely for informational purpose after exercising due care. However, it does not constitute professional advice or a formal recommendation. The author does not own any responsibility for any loss or damage caused to any person, directly or indirectly, for any action taken on the basis of the above article.
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Compiled by- CA Chirag Agarwal (Practicing Chartered Accountants)