Calculate Interest under section 234A, 234B, 234C of Income Tax Act

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Filing of Income Tax Returns and paying taxes are the responsibility of every Indian citizen. Failure in paying the tax or filing the ITR can lead to interest payments. It is in your utmost interest to file your Income Tax Returns on a regular basis within the prescribed time. It not only makes you a law-abiding citizen but also saves you from being charged with interests by the income tax department.

A taxpayer is required to pay interest on account of failure to file a return within prescribed limit or on account of failure in filing return at all.  There are certain types of interests that are to be paid by taxpayer in case there has been non-payment of taxes. In order to learn calculating interest under sections 234A, 234B and 234C, let us learn what causes interest payment under such sections:

Section 234A of Income Tax Act: Interest for defaults in furnishing return of income

Income Tax Returns for a financial year need to be filed within the time limit prescribed for each year for assessee. Failure to file a return within this prescribed time or not filing return at all will attract this Interest. If you have unpaid taxes that are outstanding and you have not filed your returns by the due date, you will be charged an interest amount of 1% per month or part of the month (simple interest) on the tax amount outstanding. This interest will be calculated from the due date applicable to you for filing of return of the relevant financial year till the date that you actually file your return.

In order to know about calculation of interest under Sections 234A, let us take the help of this example,

Mr. A has an outstanding tax of Rs. 1,00,000 (net of advance tax paid & TDS if any). He does not file his return before the prescribed due date i.e 31st July and files the same on 20th December. Since he missed the actual date for filing the return, interest for 5 months will be charged,

Interest = 1,00,000*1%*5 = Rs. 5,000

Rs 5000 is the payable interest under section 234A by Mr. A

Therefore, Mr. A would now have to pay Rs. 5,000 as interest which is over and above his outstanding tax. Not paying his dues till March, he will be charged at the rate of 1% per month till the end of the financial year that is 31 March.

 Section 234B: Interest for defaults in payment of advance tax.

If an individual have to pay Rs 10,000 or more as taxes in a year, advance tax will be applicable. Advance Tax means paying your tax dues on the due dates provided by the income tax department. If advance tax is not paid on time or there is default completely, interest under section 234B will be levied.

Businessmen, professionals, and salaried employees are liable to pay advance tax, where tax payable amounts to Rs 10,000. Under Section 44AD, when a taxpayer opts for computing business income, which has a turnover of 8% on presumptive basis, he is exempted from paying advance tax. Senior citizens above 60 years and with no income are also exempted under this section.

Under Section 234B of Income Tax Act, the taxpayer shall pay at least 90% of the tax that is due to be paid at the end of the financial year. In case the payment of advance tax is delayed, then the taxpayer shall be liable to pay simple interest at the rate of 1% for every month or part of a month, advance tax can be paid on a quarterly basis.

In order to know about calculation of interest under Sections 234C of Income Tax Act, let us take the help of this example,

Mr. B has total tax liability of Rs.52,000 for A.Y. 2020-21, out of which Rs. 30,000 was paid as advance tax by him on 9th March,2020, remaining 22,000 was paid at time of filing of return on 29th May,2020.

Even though Mr. B has paid advance tax, we need to check whether he paid at least 90% of the assessed tax as advance tax or not. Assessed tax is Rs 52,000. 90% of assessed tax is Rs 46,800. However, Mr. B deposited only Rs 30,000, which is less than 90% of assessed tax. Therefore, Mr. B is liable to pay interest under section 234B.

Interest = (Tax Liability- Advance Tax)*1%*Months Delayed

             =(52,000-30,000)*1%*2 = Rs. 440

Rs 440 is the payable interest under section 234B by Mr. B

Also Read:

Section 234C: Interest for deferment of advance tax

Income tax should be paid on time every financial year to avoid interes on late payment of taxes. Below mentioned table provides with the due dates for paying advance tax and also interest under section 234C on such late payment:

Due date for paying Advance Tax on or before   Amount to be paid Rate of Interest u/s 234C and period of interest
15th June 15% of Amount* less tax already deposited before June 15 Simple interest @1% per month for 3 months  
15th September 45% of Amount* less tax already deposited before September 15 Simple interest @1% per month for 3 months  
15th December 75% of Amount* less tax already deposited before December 15 Simple interest @1% per month for 3 months  
15th March 100% of Amount* less tax already deposited before March 15 Simple interest @1% per month for 1 month  

Amount*- the amount to be paid, is calculated after tax deductions under Sections 90, 91, and 115JD

In order to know about calculation of interest under Sections 234C, let us take the help of this example,

Mr. C is liable to pay tax of Rs. 2,00,000. The same is paid as follows:

Due Date on or before Advance Tax Payable Total Advance Tax Paid Cumulative Shortfall Cumulative Interest u/s 234C
15th June 30,000 15,000 15,000 @1%*3*15,000 = 450
15th September 90,000 50,000 40,000 @1%*3*40,000 =1,200
15th December 1,50,000 70,000 80,000 @1%*3*80,000 =2,400
15th March 2,00,000 60,000 1,40,000 @1%*1*1,40,000 =1,400

These were some details regarding interest calculation under Sections 234A, 234B, and 234C of the Income Tax Act. Pay all advance tax and dues on time to avoid interest liability .               As “Money Saved is Money Earned”.

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