Interest Payable under section 234A, 234B, 234C

Under the Income-tax Act, different types of interests are levied for various kinds of delays/defaults.
Section 234A – delay in filing the return of income
Section 234B – non-payment or short payment of advance tax
Section 234C – deferment of advance tax (non-payment or short payment of individual instalment or instalments of advance tax)
With proper planning, one can maintain timely tax payments. However, if not planned on time, you might end up delaying your payments.

Rule 119A which gives the manner of computation of interest under the Income-tax Act.

the following rule shall be followed :

1. a) where interest is to be calculated on annual basis, the period for which such interest is to be calculated shall be rounded off to a whole month or months. For this purpose any fraction of a month shall be ignored
2. b) where the interest is to be calculated for every month or part of a month comprised in a period, any fraction of a month shall be deemed to be a full month and the interest shall be so calculated;
3. c) the amount of tax, penalty or other sum in respect of which such interest is to be calculated shall be rounded off to the nearest multiple of one hundred rupees. For this purpose, any fraction of one hundred rupees shall be ignored and the amount so rounded off shall be deemed to be the amount in respect of which the interest is to be calculated.

Interest under Section 234A

Interest under section 234A is levied for delay in filing the return of income. In other words, if the taxpayer files the income tax return filing after the due date specified in this regard, interest under section 234A will be levied.

Rate of Interest :

Interest under section 234A is levied for delay in filing the return of income. Interest is levied at 1% per month or part of a month. The nature of interest is simple interest.

Period of levy of interest under section 234A

Interest under section 234A is levied from the period commencing on the date immediately following the due date of filing the return of income and ending on the date of furnishing the return of income, or in case where no return has been furnished, on the date of completion of the assessment under section 144.

Amount liable to compute interest under section 234A

• Interest is levied on the tax determined under section 143(1)
• In case of regular assessment : the tax on total income as determined under such regular assessment as reduced by advance tax, tax deducted/collected at source, relief claimed under various sections like sections 89/90/90A/91 and tax credit claimed under section 115JAA/115JD.

Section 234B

Section 234B provides for levy of interest for default in payment of advance tax.

Provisions of this section:

Interest under section 234B is levied in following two cases:

1. a) When the taxpayer has failed to pay advance tax though he is liable to pay advance tax
2. b) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax (meaning of assessed tax is discussed later).

Advance tax : As persection 208 , an assesee is liable to pay advance tax during the financial year it the estimated tax liability of assesse exceeds Rs.10000
Rate of Interest : The taxpayer is liable to pay simple interest at 1% per month or part of a month for default in payment of advance tax.

Amount liable to compute Interest under Section 234B

Interest under section 234B is levied on the amount of unpaid advance tax. If there is a shortfall in payment of advance tax, then interest is levied on the amount by which advance tax is short paid.

Period of levy of interest:

• Interest under section 234B is levied from the first day of the assessment year, i.e., from 1st April till the date of determination of income under section 143(1) or
• when a regular assessment is made, then till the date of such a regular assessment.
• In a case where the income is increased on account of assessment/re-computation, interest under section 234B will be levied on the differential amount from the first day of the assessment year till the date of assessment/re-computation
• In a case where and application is made to Settlement Commission, interest under section 234B will be levied on the differential amount from the first day of the assessment year till the date of making the application.
• Further, if the income as declared in the application is increased by the Settlement Commission, interest under section 234B will be levied on the differential amount from the first day of the assessment year till the date of such order. If as a result of rectification order of the Settlement Commission, income is increased/decreased, interest will also be increased/decreased accordingly.
• If the taxpayer has paid any tax before completion of assessment, then interest will be levied as follows:
• Upto the date of payment of self assessment tax, interest will be computed on the amount of unpaid advance tax.
• From the date of payment of self assessment tax, interest will be levied on the unpaid amount of advance tax after deducting the self assessment tax paid by the taxpayer.

Interest under Section 234C

Section 234C provides for levy of interest for default in payment of instalment(s) of advance tax.

Before proceeding it is important to note the due dates for advance tax

For Taxpayers (other than those who opted for presumptive taxation scheme of section 44AD or section 44ADA)
By 15th June                  –        Upto 15% of advance tax
By 15th September –        Upto 45% of advance tax
By 15th December –        Upto 75% of advance tax
By 15th March                –        Upto 100% of advance tax
For Taxpayers who opted for presumptive taxation scheme of section 44AD or section 44ADA
By 15th June                  –        nil
By 15th September –        nil
By 15th December –        nil
By 15th March                –        Upto 100% of advance tax
Any tax paid till 31st March will be treated as advance tax.

Provisions of this section 234C

• Interest under section 234C is levied, if advance tax paid in any instalment(s) is less than the required amount
• No levy of interest if shortfall in payment of advance tax is due to capital gains or winning from lottery, etc. Interest under section 234C is not levied, if, the shortfall in payment of advance tax is due to failure to estimate the amount of capital gains or winning from lottery , crosswords or puzzles
• Interest under section 234C is not levied, if, the shortfall in advance tax is due to failure to estimate the amount of income from a new business or individuals pay income tax in India referred to in section 115BBDA (i.e., dividend received from a domestic company exceeds Rs. 10,00,000)
• But , the taxpayer pays the required advance tax on such income as a part of immediate following instalments or till 31st March, if no instalment is pending.

Rate of interest :

The taxpayer is liable to pay simple interest @ 1% per month or part of a month for short payment/ non-payment of individual instalment(s) of advance tax.

Period of levy of interest :

Interest under section 234C is levied for a period of 3 months, in case of short fall in payment of 1st, 2nd and 3rd instalment and for 1 month, in case of short fall in payment of last instalment.;

Amount liable for interest:

Interest under section 234C is levied on the short paid amount of instalment(s) of advance tax.