Types of Interest Under Section 234
With proper planning, one can maintain timely tax payments. However, if not planned on time, you might end up delaying your payments. The interest rates for various types of defaults are listed under Section 234A, Section 234B, and Section 234C of the IT (Income Tax) Act. Let us have a look at all of them in detail.
Section 234A – Interest for Default in Filing Tax Return
The interest levied for delay in filing the return of income comes under section 234A of the Income Tax Act. If the taxpayer files their income tax return after the due date specified by the authorities, an interest under this section will be levied.
Rate of Interest under Section 234A
Interest under section 234A is levied for delay in filing the tax return of income. Interest is levied at 1% per month or part of a month on the tax amount outstanding. The interest needs to be paid is simple interest. The taxpayer is liable to pay a simple interest at 1% per month or part of a month for delay in filing your tax return.
Amount on which Interest is to be Levied
In case of delay in filing of income tax return, interest shall be liable to pay on the amount of the tax on the total income as determined under sub-section (1) of section 143, and where a regular assessment is made, on the amount of the tax on the total income determined under regular assessment, as reduced by the amount of—
a) Advance tax, if any paid;b) Any tax deducted or collected at source;c) Any relief of tax allowed
How is interest penalty calculated under Section 234A?
Interest Penalty = Outstanding Tax X 1% X Number of month (delayed), where fraction of a month is considered as full month.
Example, if you are 4 months 10 days late, the interest will be charged for 5 months.
Section 234B: Interest for Defaults in Payment of Advance Tax
Interest under section 234B of the Income Tax Act is levied in two cases - 1) If the taxpayer has failed to pay advance tax, which he is liable to pay if his estimated tax liability for the year is Rs. 10,000 or more, or 2) If the advance tax paid by the taxpayer is less than 90% of the assessed tax, which is the amount of tax as calculated under section 143(1) and where regular assessment is made, the tax on the total income determined under such regular assessment.
Rate of Interest under Section 234B
Interest under 234B is levied for default in payment of advance tax. Interest is levied at 1% per month or part of a month. The interest needs to be paid is simple interest. The taxpayer is liable to pay a simple interest at 1% per month or part of a month for default in payment of advance tax.
Period of Levy of Interest
Interest under section 234B is levied from the first day of the assessment year (mostly from 1st April) till the date of determination of income under section 143(1) or when a regular assessment is made. In case where the income is increased basis the assessment or re-computation, the interest is levied on the differential amount from the first day of the assessment year till the date of assessment or re-computation.
Section 234C: Payment of Advance Tax not on Time or Interest for Deferment of Advance Tax
Section 234C of the Income Tax Act defines the rate of interest and conditions if you delay the advance tax installments. Everyone, including salaried taxpayers, is required to pay advance tax every quarter of the financial year.
If your advance tax installments have been delayed you are required to pay a penalty as defined in section 234C of the Income Tax Act. Interest under section 234C is levied in case of deferment of different installments of advance tax, in following cases:
1) For taxpayers other than those who have opted for presumptive taxation scheme under section 44AD or section 44ADA, interest shall be levied-
a) If advance tax paid on or before 15th day of June is less than 12% of the tax payable on the returned income,
b) If advance tax paid on or before 15th day of September is less than 36% of the tax payable on the returned income,
c) If advance tax paid on or before 15th day of December is less than 75% of the tax payable on the returned income, and (d) If advance tax paid on or before 15th day of March is less than 100% of total tax due on returned income.
2) For taxpayers who have opted for presumptive taxation scheme under section 44AD or section 44ADA, interest shall be levied if advance tax paid on or before 15th day of March is less than 100% of tax due on returned income.
Late payment interest under this Section, too, is applied at the rate of 1% on the outstanding amount of tax, starting from the individual dates listed above, up to the payment date.
Rate of Interest under Section 234C
Interest under section 234C for default in payment of installments of advance tax is levied at 1% per month or part of a month. The taxpayer is liable to pay a simple interest at 1% per month or part of a month for short payment/non-payment of individual’s installments of advance tax.
Period of Levy of Interest
Interest under section 234C is levied for a period of 1 month in case of short fall in payment of the last installment and for a period of 3 months in case of short fall in payment of 1st, 2nd and 3rd installments.
Section 234F of the Income Tax Act - Penalty for late filing of Income Tax Return (ITR)
Section 234F of the Income Tax Act of 1961 was introduced in 2017. As per section 234F of the Income Tax Act, if a person is required to file an Income Tax Return (ITR forms) as per the provisions of the Income Tax Law [section 139(1)] but does not file it within the prescribed time limit then late fees have to be deposited by him while filing his ITR form. The quantum of fees shall depend upon the the total income.
Fine for Late Filing of ITR Under Section 234F of the Income Tax Act.
(A). If your total income is more than 5 Lakhs & return is filed after the due date, Fee = Rs. 5000(B). If the total income is less than or equal to 5 Lakhs & return is filed after the due date, Fee = Rs.1000.(C). If the total income does not exceed Rs. 2.5 Lakh, No late filing Fees applicable
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