Discipline 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:
- If the Assessee was liable to pay advance tax, but failed to deposit that.
- 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 Date||Amount due|
|On or before 15 September||30% of advance tax|
|On or before 15 December||60% of advance tax|
|On or before 15 March||100% of advance tax|
Mr. Ratan is an assessee whose income tax computed was Rs 6,00,000
He paid the following advance tax:
- 10th Sep: Rs 30,000
- 15th Dec: Rs 50,000
- 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
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.