Many of the people are often confused when they analyse their income tax return, specially in terms of interest penalty charged on tax. One of the baffling interest penalties charged on tax are u/s 234A, 234B and 234C of Income Tax Act. So lets learn about this and understand their differences..
Section 234A: This section is attracted when the assessee had not filed his income tax return on time.If the assessee has not filed his return of income within the time limit prescribed, he shall pay simple interest @ 1% for every month or part of a month. It is calculated from the due date to date of furnishing the return.
Lets take an example.
Mr. Ram had to file his return on or before 30 September(as per act). However he had filed it on 31 December( 3 months delay)
So the interest charged under Section 234A will be= Tax as per income*1%*3months
If an assessee has to pay advance tax and he has not paid such tax or if the advance tax paid by him is less than 90% of the assessed tax, he shall pay simple interest @ 1% every month or part of a month.
It is calculated from April 1st of the next financial year to date of determination of total income under Section 143(1). But, if regular assessment u/s. 143(3) is completed, then interest is chargeable up to the date of regular assessment.
Interest shall be calculated on the amount equal to the assessed tax in case no advance tax is paid, or on the amount by which the advance tax paid falls short of the assessed tax.
Lets take its examples in two cases:
CASE 1: When assessee had not paid any advance tax in year,
Mr. Ram have tax liability of Rs.300000. But he has not paid any tax throughout year. So the interest charged under section 234B= 300000*1%*4months(April-July)= Rs.12000
CASE 2: When assessee had paid advance tax less than 90℅ of assessed tax,
Mr.Ram had tax liability of Rs.300000. He paid Rs.115000 as advance tax.
90% of assessed tax= 300000*90%= Rs.270000
Advance tax paid= Rs.115000
So shortfall in payment of tax=Rs.155000(270000-115000)
Interest penalty under section 234B= 155000*1%*4months(April-July)= Rs.6200
If the advance tax paid is in underestimated instalments or if it s not paid at all, Section 234C gets attracted.
Interest is calculated on the difference between the instalment paid and instalment payable. This is how interest is calculated:
1% p.m. for a period of 3 months for every deferment.
But, for last instalment on 15th March, interest would be 1% for 1 month only.
The interest will be calculated for every quarter in same manner as calculated as per section 234B,i.e,
=Shortfall in payment*1%*3months(per quarter)
This is how the interest charged under this section is calculated. So you will not get confused when next time you will read your return statement.