Ever caught in a situation when you couldn’t file your income tax return on time? Or ever caught in the complexities of default made on payment of Advance Tax? You are not alone. Here is everything you need to know about Interest u/s 234 A, B, C of Income Tax Act, 1961.
Income Tax Act, 1961 requires that Income Tax Return to be filed in time and advance tax to be paid correctly within time prescribed. In case the assessee fails to comply with the provisions of the Act, interest shall be chargeable.
- Interest u/s 234 A: INTEREST FOR DELAY IN FILING THE RETURN OF INCOME
If the assessee has not filed his Income Tax return within the time limit prescribed, he shall be liable to pay simple interest @ 1% for every month or part of month. Interest is calculated from the due date to date of furnishing the return.
- Interest u/s 234 B: INTEREST FOR DEFAULT IN PAYMENT OF ADVANCE TAX
If the assesse has to pay advance tax and he has failed to pay such tax OR he has paid less than 90% of the assessed tax, he shall be liable to pay simple interest @ 1% for every month or part of the month.
Interest shall be calculated on the amount equal to assessed tax in case no Advance Tax is paid OR on the amount by which the advance tax paid falls short of assessed tax.
The period for which interest is payable would be the period from the first day of April next following such Financial Year to the date of determination of total income under Section 143(1). However, if regular assessment under Section 143(3) is complete, the interest shall be chargeable up to the date of regular assessment.
- Interest u/s 234 C: INTEREST FOR DEFAULT IN PAYMENT OF INSTALLMENT OF ADVANCE TAX
An assessee is liable to pay advance tax as per section 208 of the Act, if his estimated tax liability for a particular financial year is Rs. 10,000 or more. If the advance tax paid is in underestimated installments or if it is not paid at all, Section 234C is attracted.
Advance tax is to be paid in installments as given below:
| Status | By 15th June | By 15th Sept. | By 15th Dec. | By 15th March |
| Non-Corporate taxpayers | Nil | Up to 30% of advance tax | Up to 60% of advance tax | Up to 100% of advance tax |
| Corporate taxpayers | Up to 15% of advance tax | Up to 45% of advance tax | Up to 75% of advance tax | Up to 100% of advance tax |
So in case of deferment or short payment of advance tax in case of non-corporate assessee, interest is to be calculated as follows:
| Scenario | Interest |
| If paid Less than 30% of advance tax up to 15th September | 1% per month i.e. 3 months on the shortfall amount below 30% |
| Less than 60% up to 15th December | 1% per month i.e. 3 months on the shortfall amount below 60% |
| Not 100% Up to 15th March | 1% on the shortfall amount below 100% for 1 month |
Recommendation:
- It is advisable to pay tax before due date of filing your return to avoid Section 234A of income tax act.
- It is advisable to pay 90% of your tax payable after TDS on or before 31st March to avoid Section 234B.
- It is advisable to pay prescribed advance tax installments before due date to avoid Section 234C.
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