Interest Under Section 234A/B/C - Explained

Every person is required to file Income tax returns and pay taxes in India if their taxable income exceeds basic exemption limit. Defaults in payment of taxes or filing income tax returns will lead to huge interest and penalties under different sections of income tax.

This document covers

1. Interest u/s 234A - Interest for default in furnish Income tax return
2. Interest u/s 234B - Interest for non-payment or short payment of advance tax
3. Interest u/s 234C - Interest for deferment of Advance Tax
4. 234F - Fee for default in furnishing Income Tax Return

1. Interest u/s 234A - Interest for default in furnish Income tax return

• Rate of interest: If the income tax return is not filed within due date of filing u/s 139(1), interest u/s 234A will be charged at the rate of 1% for every month or part month.
• Period of interest: Interest will be levied from the day immediately following the due date to the date of filing income tax return.
• The due date for filing income tax return for individuals, firms, LLP’s, HUF etc who don’t required tax audit is July 31 and for the companies and others who require tax audit is Oct 31

• Original Due date - 31st Jul 2022
• Actual date of filing - 15th Oct 2022
• Delay in no of months - 3 months (Aug, Sep and Oct)
• Interest is 60000 * 1 * 0.03 = 1800

NOTE : Interest u/s 234A will not be charged on self-assessment tax paid by the taxpayer on or before the due date of filing income tax return.

2. Interest u/s 234B - Interest for non-payment or short payment of advance tax

• Rate of interest: If the taxpayer who is liable to pay advance tax fails to pay advance tax or the paid advance tax is less than 90% of tax payable, interest u/s 234B will be levied at the rate of 1% for every month or part of month.
• Period of interest: Interest will be levied from the 1st April of the following financial year to date of determination of total income u/s 143(1) i.e., till date of tax paid
• Amount on which interest is payable:
  • If no advance tax paid - interest needs to be paid on total tax payable
  • If advance tax paid falls short of 90% of tax payable – Total tax payable-Advance tax paid
  • Tax payable - 90,000
  • Less: TDS - 20,000
  • Total Tax payable = 70,000
  • Date of tax payment - 31st Jul 2022
  • Delay - 4 months (April, May, June and July)
  • Interest is 70,000 * 1 * 0.04 = 2800

  3. Interest u/s 234C - Interest for deferment of Advance Tax

  • Advance tax should be paid at regular quarterly intervals and if the taxpayer fails to pay the specified percentage of advance tax, then the taxpayer is required to pay interest u/s 234C.
  • Rate of Interest: Interest u/s 234C is levied at the rate of 1% per month or part of month.
  • Period of interest: Interest will be levied for a period of 3 months in case of shortfall of payment for 1st , 2nd , 3rd and levied for 1 month in case of shortfall of payment for 4th instalment (Last)
  • Manner of computation of 234C

  Particulars	Upto 15th June	Upto 15th September	Upto 15th December	Upto 15th March
  Tax payers other than those opting for presumptive u/s 44AD and 44ADA	Upto 15% total tax Period: 3months	Upto 45% of total tax Period: 3months	Upto 75% of total tax Period: 3months	Upto 100% of total tax Period: 1month
  Taxpayers opting for presumptive u/s 44AD and 44ADA	Nil	Nil	Nil	Upto 100% of total tax Period: 1 month

  NOTE : If the advance tax paid by the taxpayer on or before 15th June and 15th September is not less than 12% or 36% of the tax due, then the taxpayer is not liable for interest u/s 234C

  ★ Non-Applicability of interest u/s 234C in certain cases

  Interest u/s 234C is not levied in respect of shortfall in advance tax payment if such shortfall is on account of under estimate or failure to estimate

  1. The amount of capital gains
  2. Winnings from lotteries, crossword puzzles etc
  3. Income from Business/profession for the first time
  4. Amount of dividend income u/s 2(22)(a)(b)(c)(d)

  NOTE-1 : The taxpayers who is liable to pay advance tax of less than Rs 10,000 will not attract 234B and 234C interest

  NOTE-2 : Resident Senior Citizens who have passive source of income like interest, Rent and not having income from business/profession need not pay advance tax

  4. 234F - Fee for default in furnishing Income Tax Return

  • If the taxpayer income is less than Rs 5 lakhs and not filed his income tax return within due date, he is required to pay a penalty of Rs 1000
  • If the taxpayer income is more than Rs 5 lakhs and not filed his income tax return within due date, he is required to pay a penalty of Rs 5000