Why to Pay interest u/s 234A, 234B & 234C “with example” under Income tax act?

By | 06/18/2018

Paying your installment on time will appreciate your credit rating, on the other hand, Paying interest under section 234A, 234B & 234C mark a dent on your saving.

The same phenomena rule under income tax payment. In this article, we will discuss on what circumstances the taxpayer is levied to pay interest u/s 234A, 234B & 234C under Income tax act.

There is a separate column in the ITR form indicates sections 234A, 234B, 234C:

interest under section 234A 234B 234C

What is Interest under Section 234A?

Paying your income tax return on time is mandatory, and if you have an outstanding tax liability, you must be panelized and you have to pay interest u/s 234a.

Also Read: Advance Tax “Challan No. 280” – (Step by Step Guide)

How to calculate Interest under section 234A?

The system itself calculate the amount of interest while filling the form under 234A:

The interest is payable @ 1% from the 1st day after the due date of filing the return till the actual filing date of the return.

What is Interest under Section 234B?

In case of an individual is entitled to pay an income tax of ₹ 10000, then he comes under advance tax payment scenario.

If the taxpayer fails to pay 10% of the liability up to completion of the financial year, he is penalized with the penalty under section 234b of income tax act.

Also Read: What is Fees u/s 234F? (Penalty for Late Filing Income Tax Return)

The Taxpayer is penalized under two scenarios:

  • If the taxpayer fails to pay advance tax.
  • When the tax payee paid advance tax but not up to 90% of the tax liability.

How to calculate Interest under section 234B?

The calculation of interest under section 234B is as similar as 234A.

The interest is payable @ 1% is chargeable from 1st April of the Assessment Year to the date of determination of income.

What is Interest under Section 234C?

The individual can make the liability payment of tax in four installments, if you fail to do so, you must be penalized, that’s we all known:

Penalty u/s 234C looks into the time period you have made your installments or not, These installments must be paid on or before the due date. If you fail to do so penalty and interest u/s 234c is imposed.

Also Read: Tax deduction u/s “80G” of Income Tax Act (relief on charity)

Due date of payment of advance tax (Corporate assessee & Non Corporate assessee).

Income tax department provides a smooth path for the taxpayer to reduce the burden of payment of tax liability through four installments quarterly.

After all, that, if the taxpayer fails to do so up to the prescribed percentage, he will be penalized u/s 234C.

Points for calculating penalty u/s 234C:

The interest is calculated @ 1% from the due date to the actual date of payment. Interest u/s 234C is levied for a period of 3 months for first, second & third installment.

Also Read: What is Form 10 BA – “Declaration u/s 80GG” – House Rent

Calculation with an example to understand penalty u/s 234C

This example put up as the random situation of tax payment under all installment with a shortfall of Mr. Roshan from New Delhi.

Mr. Roshan had to pay the Tax amount of ₹ 84000 for the financial year 2016-17.

He paid ₹ 10000 before 15th July, and ₹ 12000 before 15th September, ₹ 13000 on 15th December and by the end of financial year, he finally paid Total of ₹ 60000.

The remaining amount he paid in the month of August next financial year.

The close look at the above example:

Pointwise analysis:

  • Mr. Roshan tax liability is ₹ 84000 for the financial year 2016-17.
  • He paid ₹ 10000 instead of ₹ 12600 (15% of Assessed Tax before 15th July). The shortfall is ₹ 2600.
  • Before 15th September he paid ₹ 12000 instead of ₹ 25200 (30% Assessed Tax before 15th September) again a shortfall.
  • Next installment he paid before 15th September of ₹ 13000 instead of ₹ 25200 (30% Assessed Tax before 15th December), another shortfall.
  • Finally, he paid total(including above installment) of ₹ 60000 on 31 March. But he is supposed to pay 100% tax amount of ₹ 84000 (Balance unpaid amount is ₹ 24000). 
  • He paid the balance amount in the month of August next financial year.

Also Read: Income tax rebate u/s “87 A” allowed to individual

This you look back Section 234B says that if the taxpayer paid advance tax but not up to 90% of the tax liability, he is liable to pay 1% penalty u/s 234B.

Mr. Roshan also stock under the radar of section 234B, he is also liable to pay the penalty u/s 234B.

If Mr. Roshan paid 90% of ₹ 84000 i.e. ₹75600, he must be released under this section.

Due to shortfall u/s 234B, he is a liability to pay penalty as follows:

Total interest payable u/s. 234B & 234C by Mr. Roshan will be ₹ 2292 (₹ 1332 + ₹ 960).

Also Read: Tax relief under section 89(1) on salary arrears

Author Profile

Amit Bansal
Amit Bansal
Hey, Amit Kumar Bansal, the man behind this blog. I always passionate about Taxes, Stock Market. This was one of the reasons why I have chosen the field of account. Blogging was not the coincidence it was a proper decision. The main aim of this blog is to help readers to take an informed financial decision. If you like my efforts kindly subscribe to this blog and also let your friends know about this website by sharing.

4 thoughts on “Why to Pay interest u/s 234A, 234B & 234C “with example” under Income tax act?

  1. K K Mishra

    Sir, the bank has filed TDS of 10% on interest accrued on Fixed deposits as on 31st march 2018 in may 2018. I just entered the FD income amounting to 98000 and was willing to pay remaining tax since I am in 30% tax bracket.but the ITR site shows around 1900 fine as per section 234b and C. How it’s possible to assess the tax liability when the form 26AS in april did not show the tds in full. What can be done in this case..

    Reply
    1. Amit Bansal Post author

      Hello Shri K K Mishra Sir, As you come under 30% tax bracket, You have some obligations.

      You have to pay advance tax (15% of estimated Advance Tax) on or before 15th June.
      The Fine u/s 234B and C is due to nonpayment of advance tax.
      Advance tax is paid on the estimation of calculation according to your gross income.
      You can also refer: https://financialcontrol.in/advance-tax-payment-processor/

      Thanks 🙂

      Reply
  2. Raneesh K P

    i hv received intimation of cpc charging interest 234b,c . i hv received arrears of salary. my tax was deducted in tds. no tax was due to me. ihv claimed refund in return , despite of it i received demand on acc of interest 234b,c. i want to know. tax liability due is calculated before relief 89 income or after deducting relief. please share

    Reply

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