Provision relating to Interest Payable under Income-tax Act

Updated upto A.Y. 2018-19

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Income-tax Act, among others, requires:

  • Return of tax is required to be filed within due date
  • Advance tax is required to be paid as per prescribed schedule

Where an assessee fails to comply with these provisions, assessee is liable to pay interest under section 234A, 234B and 234C.

Following points are to be noted regarding calculation of interest, whether such interest is receivable from or payable to the Central Government (Rule 119A):

  1. Rounding off the amount on which interest is to be calculated
    Amount on which such interest is calculated will be rounded off to the multiple of 100 by ignoring any fraction of 100. E.g., amount on which interest is to be calculated is ₹ 240 or ₹ 290, then it is to be rounded off to ₹ 200 by ignoring fraction of ₹ 40 or ₹ 90.
  2. Rounding off the period for which interest is to be calculated
    • When interest is calculated on monthly basis, any fraction of the month shall be taken as full month. E.g., Interest is to be calculated from 1st August to 5th December, then interest shall be calculated for 5 months.
    • When interest is calculated on annual basis, any fraction of the month shall be ignored.

The provision of sec. 234A, 234B and 234C are enumerated here-in-below:

Sec. 234A: Delay in furnishing return of income

ApplicabilityWhere a person, who is required to furnish return of income:

  1. fails to furnish a return; or
  2. furnishes it after the due date specified u/s 139(1).
AmountTax liability – advance tax paid – TDS / TCS – any relief u/s 90 or 90A or 91 – MAT / AMT credit
Rate1% (simple interest)
Period fromThe day immediately following the due date for furnishing return
UptoDate of furnishing return or where the return is not filed at all, upto date of completion of assessment u/s 144
Also Read  Presentation on Interest Payable by the Assessee

  • Due date of filing return: 31st July
  • Actual Filed on: 15th September
  • Tax Liability: ₹ 1,25,000/-
  • TDS: ₹ 15,880/-
  • Advance Tax: ₹ 9,100/-
  • Tax paid on: 15th September

  • Delay (in months) (A): 2 months
  • Rate of interest (B): 1% p.m.
  • Amount: ₹ 1,25,000 – ₹ 15,880 – ₹ 9,100 =  1,00,020/-
  • Amount Rounded off (C):  1,00,000/-

Interest (A x B x C): ₹ 2,000/-  

Sec. 234B: Default in payment of advance tax

ApplicabilityWhere a person, who is required to pay advance tax –

  1. fails to advance tax at all; or
  2. fails to pay 90% of assessed tax as advance tax
Amount
  • Where no tax is paid u/s 140A
    Assessed tax – Advance tax paid
  • Where tax is paid u/s 140A
    • Period upto the date on which tax as per self-assessment is paid:
      Assessed tax – Advance tax paid
    • Period after the date on which the tax as per self assessment is paid:
      Assessed Tax – Advance tax paid – Tax paid on Self Assessment

  1. Assessed Tax = Tax determined by the Department – TDS & TCS – Relief u/s 90, 90A and 91 – MAT or AMT Credit
  2. Where amount paid under self-assessment falls short of tax and interest calculated as per self-assessment, then amount paid shall be first adjusted towards interest and balance, if any, shall be adjusted towards tax payable.
Rate1% (simple interest)
Period from1st April of the assessment year
UptoDate of assessment order

  • Tax Payable on assessed income: ₹ 2,06,700
  • Advance tax paid: ₹ 1,68,000
  • Tax deducted at source: ₹ 16,700
  • Date of assessment order: 23rd Dec. of the A.Y.

  • Assessed tax: ₹ 2,06,700 – ₹ 16,700 = ₹ 1,90,000
  • 90% of above: ₹ 1,71,000
  • Advance tax paid: ₹ 1,68,000
  • Since advance tax paid by the firm is less than 90% of assessed tax, sec.234B is applicable
  • Shortfall (Assessed tax – Advance tax paid) (A): ₹ 22,000
  • Period of default [from April to Dec.] (B): 9 months

Interest u/s 234B (A x B x 1%): ₹ 1,980

Sec. 234C: Deferment of advance tax

ApplicabilityAssessee fails to pay the amount or pays lesser amount of advance tax
AmountShortfall in payment of specified % of advance tax liability

Advance Tax liability = Tax on the total income declared in the return filed by the assessee – TDS / TCS – Any tax credit available

Rate1% (simple interest)
Period3 months (1 month for last installment)
Notes
  1. Where an assessee has paid 12% or more of tax as advance tax on or before June 15, then no interest u/s 234C is payable.
  2. Where an assessee has paid 36% or more of tax as advance tax on or before September 15, then no interest u/s 234C is payable.
  3. No interest will be levied in respect of any shortfall in the payment of advance tax due on the returned income, if –
    1. The shortfall is on account of under-estimation or failure to estimate the amount of:
      1. capital gains; or
      2. income of the nature referred to in section 2(24)(ix) [i.e. lottery, cross-word, etc.];
      3. income under the head “Profits and gains of business or profession” in cases where the income accrues or arises under the said head for the first time; or
      4. income of the nature referred to in sec. 115BBDA (i.e., dividend in excess of specified limit)
    2. The assessee has paid the whole of the amount of tax payable in respect of such income as part of the remaining installment(s) of advance tax which were due or where no installment are due, by March 31 of the previous year.

Sec. 201(1A): Delay in payment of TDS

ApplicabilityWhere a person, responsible for deducting tax at source, fails to –

  • deduct tax at source; or
  • deposit such tax after deducting the same
AmountOn the amount of such tax
Rate
  • From the date on which such tax was deductible to the date on which such tax is deducted
    1% (simple interest)
  • From the date on which such tax was deducted to the date on which such tax is actually paid
    1.50% (simple interest)
PeriodFrom the date on which such tax was deductible to the date on which such tax is actually paid.

Sec. 206C(7): Delay in payment of TCS

ApplicabilityWhere a person, responsible for collecting tax at source, fails to –

  • collect tax at source; or
  • deposit such tax after deducting the same
AmountOn the amount of such tax
Rate1% (simple interest)
PeriodFrom the date on which such tax was collectible to the date on which such tax is actually paid.

Sec. 234D: Excess Refund Granted

ApplicabilityWhere any refund is granted to the assessee u/s 143(1) and

  • no refund is due on regular assessment; or
  • the amount refunded exceeds the amount refundable on regular assessment;
AmountOn the excess amount refunded
Rate½% (simple interest)
PeriodFrom the date of grant of refund to the date of such regular assessment
Also Read  Deduction from Gross Total Income available to Individual & HUF