20-06-2022 |
As per the Income Tax Act of 1969, every earning citizen of India is required to pay an income tax* and file Income Tax Returns (ITRs) every year. Be it an individual taxpayer, firm, association, Limited Liability Partnership (LLP), or a Hindu Undivided Family (HUF), filing an ITR is mandatory for every entity in India with an annual income of more than ₹2.5 Lakh.
Besides being a mandatory obligation, filing an ITR also helps taxpayers in maintaining their income tax* payments and recovering taxes deducted at source (TDS). The income tax paid by the taxpayers forms a major source of revenue for the Government of India, which it uses to provide essential services to its citizens.
However, if a taxpayer fails to pay full or partial income tax* amount within the due dates, the Government of India levies a penalty on them. This penalty is calculated as interest under sections 234A, 234B, and 234C of the Income Tax Act. Here is a complete guide to understanding and calculating the interest imposed on taxpayers under the above-mentioned sections.
Intimation Under Section 143(1)
After receiving your ITR, the income tax* department starts its verification process. After the completion of the verification process, it sends you an intimation under section 143(1) of the Income Tax Act. The purpose of this intimation is to notify you if you’re liable to get a refund from the IT department or if you need to pay any further tax*.
In case you’re asked to pay an additional tax* to the department, you need to do it within 30 days after receiving the intimation. In case you miss this deadline, the IT department charges you a penalty under sections 234A, 234B, and 234C of the Income Tax Act. Let’s learn about the calculation of the interest under these sections in detail.
Types of Interests Imposed Under Section 234
It’s very crucial to maintain your income tax* payments with proper tax* planning. However, if you don’t plan properly, you might end up missing or delaying your income tax* payment. The interests or penalties for defaults on income tax* payments are calculated under section 234 of the Income Tax Act of 1961. Let’s have a look at them in detail.
Section 234A
The interest levied for the delay in filing of ITR is calculated under section 234A of the Income Tax Act. If a taxpayer fails to file their income tax* return even after the due dates specified by authorities, interest is imposed on them under this section.
The rate of interest levied under section 234A is 1% per month on the outstanding tax* amount. This interest is paid on a simple interest basis. For example, let’s assume that a taxpayer has an outstanding income tax* amount of ₹2 Lakh for the financial year 2019-20. Now, instead of the due date of 30th November 2020, he filed his ITR on 15th May 2021, which means that he is five months late.
So, as per section 234A, the interest imposed on him will be calculated as:
1% of ₹2,00,000 x 6, i.e., ₹12,000
It means that he will have to pay an additional amount of ₹12,000 while filing his ITR. In case he fails to clear his dues even further, an additional interest of 1% per month will be added.
Period for which the interest is levied under section 234A
Interest under section 234A is levied right from the day after the due date of filing the ITR till the date on which the ITR is originally filed by the taxpayer. In the example given above, the period of interest under section 234A will start on 1st December 2020 and ends on 15th May 2021.
In case the taxpayer fails to file his ITR even before the next financial year, the interest under section 234A is calculated until the date of completion of the assessment under section 144.
Section 234B
The interest levied for the delay or default in the payment of advance tax* is calculated under section 234B of the Income Tax Act. Such a thing happens in one of the two situations:
- If a taxpayer fails to advance tax* when his or her estimated tax* liability for a year was ₹10,000 or more
- If a taxpayer pays an advance tax* but it is less than 90% of the assessed tax* amount under section 143(1)
The interest rate levied under section 234B is also 1% per month on the outstanding advance tax* amount. For example, suppose a taxpayer has to pay an income of ₹1 Lakh for a financial year, and the TDS collected is ₹82,650. It means that the assessed tax amount is ₹(1,00,000 – 82,650) = ₹17,350. Then, the taxpayer is required to pay 90% advance tax*, i.e.,₹15,615.
However, assuming that he paid only ₹6,000 before the due date and the rest after five months, the interest under section 234B will be calculated as:
1% of ₹15,615 x 5, i.e., ₹781
The period for which the interest under section 234B is levied starts from the first day of the applicable assessment year and ends when the actual assessment is made under section 143(1).
Section 234C
Every taxpayer is required to pay quarterly advance tax* instalments every financial year. If a taxpayer fails to pay his or her advance tax* instalments on time, interest is levied on him or her under section 234C of the Income Tax Act.
The interest rate levied under this section is also 1% per month on the outstanding advance tax* instalment. This interest is levied for one month in case of non-payment of the first instalment and then, for three months in case of non-payment of subsequent instalments.
To Conclude
With proper planning, you can pay your income tax* on time and avoid any penalty under sections 234A, 234B, and 234C of the Income Tax Act. You can buy tax*-saving instruments such as life insurance plans in India to minimise your income tax* outgo. With Tata AIA, you can buy online life insurance at affordable premiums. With Tata AIA Life Insurance Plans, you can avail of tax* deductions on the premium paid towards the policy. Also, you can avail of tax* benefits on the maturity and death benefits that you or your family will receive.
L&C/Advt/2022/Jun/1198