Section 234A of the Income Tax Act

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Even though income tax should be paid on or before the due date, but, it is essential to know the various types of interest that one may have to pay in the situation of late payment of taxes. With proper tax planning, one can pay taxes on time. However, if a taxpayer delay or forgets to pay the taxes on time, then he/she is penalized under Section 234A, 234B, and 234C of the Income Tax Act. As a penalty under these sections, one has to pay interest Here we are going to discuss the type of interest that one has to pay under Section 234A of the Income Tax Act.

Types of Interest: Before understanding Section 234A-

Let us know the types of interest that are covered under Section 234:

  1. Delay in Filing the Income Tax Returns - Section 234A
  2. Postponed Payments of Advance Taxes - Section 234C
  3. Delay in the Payment of the Advance Taxes - Section 234B

Section 234A - Delay in Filing the Income Tax Returns -

Let us now know and understand what is there in Section 234A of the Income Tax. It is suggested to file the income tax return within the prescribed time limit. However, if one fails to file it on time attracts a penalty in the form of interest. In this way, when one does not file or misses the due date of the return, then h/she can be any of these three different positions:

  1. One has outstanding taxes that are to be paid to the Income Tax department.
  2. One is eligible to get a tax refund from the Income Tax department.
  3. The taxes of an individual are paid on time without expecting any refund or payable taxes.

If one falls in 2 or 3 categories as mentioned above, then he/she does not have to worry much about the late filing of the income tax returns because interest may not be applied in these two situations. However, the accessing officer may select to charge some interest, if he/she finds it necessary.

If one has unpaid outstanding taxes and he/she has not filed any income tax returns by the due date, then he/she can be in trouble.

The interest amount that is charged in such cases is 1% per month or month’s part (simple interest) on the outstanding tax amount. The interest is calculated from the applicable due date for filing the income tax return of the applicable financial year until the date one files the return.

How is Interest Under Section 234A Calculated?

An individual must keep the following points in mind at the time of calculating the interest under Section 234A:

  • The rate of interest that is charged on the outstanding amount of tax is @1%.
  • The interest is charged from the day one after the due date of filing the income tax return until the actual date of filing the return.
  • If no income tax return is filed, then the interest that is payable until the completion date of the judgement assessment as per Section 144.
  • Only the simple interest is charged.
  • When the interest is calculated, the amount of due taxes must be rounded off in the multiples of 100 and should ignore any fraction of 100.

For Example: If the calculated interest of an individual is Rs.5, 450 for a period of three months and seven days. According to the above points, if we round off the interest amount (not actually but for the purpose of calculation), to Rs.5, 400 and the interest is calculated for four months as we are considering month’s any fraction as a complete month.  

Calculation of Interest Penalty Under Section 234A by Taking an Example:

Let’s say the total outstanding tax of an individual for financial year 20117 - 18 is Rs.1 Lakh (net of TDS and paid advance tax, if any) and that person files his/her income tax return on 31st March 2019 instead of August 31st, 2018 (which is the due date of filing the ITR for Financial Year 2017 - 18). In this way, he/she is late by seven months in filing his/her Income Tax Return. So, the interest that he/she has to pay in this case is:

Interest = 100, 000 X 1% X 7 = Rs.7, 000

Therefore, he/she has to pay extra Rs.7, 000 with his/her tax amount.

If one does not file Income Tax Return at all, then he/she has to pay interest at the rate of 1% until the assessment year, which is March 31st.