Interest Under Section 234A – Interest on delay in filing Income Tax Return
There are penal provisions in the Income Tax Act, 1961 if you don’t file your return on or before due date (234A) or if there is delay in payment of Advance Tax (234B) or there is default in paying installments of Advance Tax (234C).
In this post we will discuss on calculation of penalty i.e. interest under section 234A of the Income Tax Act, 1961.
What is the interest levied under Section 234A?
In India, income tax return for financial year has to be filed on or before the due date prescribed under Section 139(1).
If you fail to file your return within this time limit and have an outstanding Income Tax liability, then as per provisions of Section 234A, you will have to pay interest on the outstanding tax liability.
Note: If there is no outstanding tax liability, then no interest is levied for non-filing of return of income.
Manner of computation of Interest
While calculating interest under this section, following points needs to be kept in mind:
- Period of Interest – Interest will be payable from 1st day after the due date till the date of filing of return. If no return is filed then interest is to be paid till the date of completion of best judgement assessment under Section 144. For calculating this period, any fraction of the month shall be considered as full month.
- Rate of Interest – Simple Interest is to be paid at the rate of 1% per month on the outstanding tax amount. This means amount of advance tax or TDS or any relief provided has to be deducted from total tax amount.
- Rounding off – When calculating interest, the amount of taxes due shall be rounded off to nearest multiple of ₹ 100 and any fraction of ₹ 100 shall be ignored.
For instance, if you have to calculate the interest under section 234A on the outstanding tax liability of ₹ 7479 for 5 months and 3 days, then the amount of tax shall have to be rounded off to ₹ 7400 and interest will be calculated for 6 months. (3 days will be considered as full month).
Calculation of Interest under Section 234A – Example
Mr. Kumar is an actor and his tax liability for financial year 2016-17 comes to ₹ 25,575. He has paid advance tax of ₹ 12,000 and has TDS credit of ₹ 5,000. His due date of filing Income Tax Return was 31st July 2017 but he has filed his return only on 2nd September 2017 after paying his tax dues. What is his liability to pay interest under Section 234A?
Solution: As interest under Section 234A is levied for delay in filing of return of income, Mr. Kumar will have to pay interest.
Interest will be payable at the rate of 1 % per month or part of the month.
He has filed his return on 2nd September instead of 31st July, so there is a delay of 1 month and 2 days. And as per provisions, delay of 2 days is taken as delay of full 1 month, hence, interest of 2 months will be chargeable on outstanding tax liability of Mr. Kumar. Calculation of Interest is as under:
Amount in ₹
Gross Tax Liability
Less: Advance Tax
Outstanding Tax Liability
Rounded Off to
Interest @ 1% per month for 2 months
Therefore Mr. Kumar has to pay ₹ 170 as interest under Section 234A.