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Yogi Zone

Useful articles for your finance management by our team of experts

Interest on Tax Payable u/s 234A, 234B, 234C

interest payable on tax
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interest payable on taxDiscipline in Income tax return is very important. Failing which, you will be liable to file additional penalties on the amount due. However, there are plenty of issues that can result in failure of tax deposits. These issues can be related to individuals or companies. For companies, it can occur due to failure to deposit advance tax or payment of tax which is less than the actual tax liability.

In case of individuals, if he does not deposit the tax at the right time or does not provide for FORM 16 to current employer after change of his company, he will be liable for interest on tax payable. This is also known as default in furnishing the income. These penalties are slapped under the following sections of 234A, 234B and 234C.

Section 234A: Evasion in Providing Return on Income

The IT Act has made provisions for a penalty of 1% every month on the amount of tax payable. This interest is calculated from the due date to the date of actually filing the income tax return.

For example, ABC has failed to file the tax return on tax payable of Rs 2,00,000, on stipulated date of 31st july 2013, and submits it on 2nd  December 2013. The Simple interest due on the tax will be-

Tax Payable:  Rs 200000

Delay in Payment of Tax from 30 September: 4 months (August, September, October, November)

Penalty: 2,00,000 * 4% = Rs 8,000

Section 234B: Evasion in Paying Advance Tax

This penalty provision activates in two cases:

  1. If the Assessee was liable to pay advance tax, but failed to deposit that.
  2. If the amount deposited was less than 90% of the tax to be deposited.

In both the above cases, assessee will be levied a penalty of 1% Simple Interest. Please remember, if you deposited the advance tax which was more than 90% of the total tax, then no penalty will be charged from you. This interest is chargeable from 1st April of the Assessment Year. It can also be charged from the initiation date of assessment year to the date of regular assessment completion.

Consider this example:

The tax liability of the Individual Assessee was Rs 2,40,000 while TDS due was Rs 40,000.

Advance tax already paid was Rs 1,20,000.

Calculation of Interest:

Tax Liability was Rs 2,40,000, while TDS was Rs 40,000.

Tax Assessment: Rs 2,00,000 (2,40,000-40,000)

Now IT department assesses, whether partial payment comes under limit of 90%.

Rs 2,00,000* 90% = Rs 1,80,000

Therefore amount of Tax paid was less than amount due by Rs 60,000 (1,80,000-1,20,000).

The total penalty interest due will be: Rs 60,000 * 1%* 4 months (April-July) = Rs 2,400.

The interest is taken till July because this is the due date of payment for individual assesses.

Section 234C: Payment of Advance tax not in time.

The payment rates of Individual assessee are considered in this example:

Assessee Is Not Corporate
Due DateAmount due
On or before 15 September30% of advance tax
On or before 15 December60% of advance tax
On or before 15 March100% of advance tax

Mr. Ratan is an assessee whose income tax computed was Rs 6,00,000

He paid the following advance tax:

  1. 10th Sep: Rs 30,000
  2. 15th Dec: Rs 50,000
  3. 9 March: Rs 25,000

Total = Rs 1,05,000

TDS= Rs 1,20,000

Tax Assessment: Rs 6,00,000- 1,20,000= Rs 4,80,000

Penalty on the Advance Tax is calculated on the basis of difference between actual amount paid and due.

30% of Rs 4,80,000 = 1,44,000, differential = 1,44,000- 30,000 = Rs 1,14,000

60% of 4,80,000 = 2,88,000, differential = 2,88,000- 80,000 = Rs 2,08,000

100% of 4,80,000 = 4,80,000, differential = 4,80,000-1,05,000 = Rs 3,75,000

 

Interest Charges:

Rs 1,14,000*1%*3 months = Rs 3,420

2,08,000*1%*3 months = Rs 6,240

3,75,000*1%*1 months = Rs 3,750

Total Penalty= Rs 13,410.

It is important to understand the penalties under Sec 234a, 234b and 234c when you are trying to keep away from tax evasion. It’s always better to keep you IT file clean and complete to avoid such interest penalties.

  • Yogi Cfp

    Q- I am self employed & my annual income of Rs. 3,00,000 (three lakhs). I also have a HDFC bank Credit Card by which i have made some payments of about 6,00.000 (6 lakhs) in this annual year.
    Now i am confused how do i submit income tax & how much i have to submit. as per income tax rule payment made more then 2,00,000 by credit card is being assessed. Please answer how can i handle this situation, do i need to pay tax for 6 lakh or do i get notice from income tax. ? and what to do if i get any Notice from Income Tax?

  • Kishan

    Hi,

    I have a pecular situation here. I am trying to prepare my last year returns (A.Y. 2013-14) now and i see the excel is calculating a penalty of 342/- in the column Interest payable u/s 234 A though i paid tax on 29-Jul-13 (self assessed tax payment 5740/- arising due to tax slab differences) for the income of other source where TDS was deducted @10% (supposed to be 20% after consolidating this income of other heads with Salary). So, is this correct that i need to pay penalty of 1% though i paid differences tax before the due date (31-Jul-13) and i am filing my returns..

    Could you please clarify on this?

    • Av Suresh

      Ideally, if you pay taxes before due date, there should not be any penalty. However, there could be difference in calculations. Also, which calculator did you use for this?

  • Alex

    Well I would like to inform the author that interest u/s 234(B) is levied on the amount of difference between assessed tax and advance tax paid. That is 200000-120000 = Rs. 80,000 here and not Rs. 60,000 as stated in the article.

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