Interest Penalty u/s 234A, 234B & 234C under Income tax act with example

Interest Penalty u/s 234A, 234B & 234C under Income tax act with example and Download Excel calculation Sheet

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 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 and you fail to file your income tax return in the prescribed deadline, 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.
  • The interest is calculated under simple interest.
  • Any fraction of a month shall be considered as a full month for calculating interest.

Section 234A Interest Calculation Example

Below Example clear all your dought about section 234A, how to calculate and why it imposed?

Example: Mr. Sachin is a car broker. He has a tax liability of ₹ 90,579 for the whole financial year, He also paid advance tax of ₹ 40332 and He also has TDS deducted ₹ 4500 by the Bank. The Deadline of filling return is 31 July and He manages to file his return on 5th of Dec. So what would be the scenario u/s 234A?

Conclusion: Mr. Sachin filed his return on 5th December, which means after the due date, he is liable to pay interest on the outstanding tax liability which is imposed @ 1% per month. The due date is 31 July and the return filed on 5 December (that means 4 months and 5 days), any fraction considered as a month, so total delay is 5 months.

Tax liability of Mr Sachin is (₹ 90,579 – (₹ 40332 + ₹ 4500)) = ₹ 45747

Interest will be levied at 1% per month on ₹ 45700 (roundup) for 5 months, which results in ₹ 2285

Thus, interest payable u/s 234A will be ₹ 2285.

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 the completion of the financial year, he is penalized with the penalty under section 234b of the 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 – (For NON-CORPORATE ASSESSEE).
  • When the tax payee paid advance tax but not up to 90% of the tax liability – (For CORPORATE ASSESSEE).

How to calculate Interest under section 234B?

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

  • The interest is payable @ 1% is chargeable from 1st April of the Assessment Year to the date of determination of income.
  • Any fraction of a month shall be considered as a full month for calculating interest.
  • Nature of interest is the simple interest.

Section 234B Interest Calculation Example

Example: Mr. Sachin has the tax liability of ₹ 84790, Sachin paid all his installments on time but by the end of Financial Year, he paid ₹ 70000 as advance tax, the balance tax amount is paid by Mr. Sachin, on 25 July with his Income-tax return. So what would be the scenario u/s 234B?

Solution: According to section 234B mentioned above, interest @ 1% will be calculated on the taxes due for a period of 4 months (April, May, June & July), considering July as a full month.

Interest liability of Mr. Sachin is – (₹ 84790 – ₹ 70000 = ₹ 14790).

(₹ 14790 x 1%) x 4 = ₹ 592

Thus, interest payable u/s 234B will be ₹ 592.

Important Note:

  • If a taxpayer opts for the presumptive scheme of calculating business income under section 44AD @ 8% of turnover, then he will be exempt from payment of Advance Tax for such business.
  • A resident senior citizen (60 years or more) who do not have any income from business & profession, is not required to pay Advance Tax.

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.

Under this section If the assessee misses any advance tax liability, he is liable to pay interest under this section.  In simple words, interest u/s 234C in case of deferment of different installments of Advance Tax is levied in the following cases:

Any taxpayer who opts for the scheme of computing business income under section 44AD on presumptive basis @ 8% of turnover, such taxpayer not required to pay Advance Tax in installments. but, he is under obligation to pay 100% of Advance Tax on or before 15th March of Financial Year for which the tax has to be paid. If he fails to do so the taxpayer required to pay interest u/s 234C. 

For all other taxpayers the percentage of Advance tax under certain time period required to pay, otherwise section 234C come into play the interest liability is levied.

How to calculate Interest under section 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 the first, second & third installment.
  • Nature of interest is simple interest.
  • Any fraction of month shall be considered as a full month for calculating interest similar to section 234A&B

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.

For NON-CORPORATE ASSESSEE

For CORPORATE ASSESSEE

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 the 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).

After all the explanation what about if you get excel based spreadsheet for calculation.

234a 234b 234c interest calculator in excel

This excel sheet is specifically designed in an excel spreadsheet which is very easy to understand for the taxpayer in different scenario’s.

You will not only get the outcome but also understand the concept of the section as well as the cause of imposing.

Click here to download Income tax interest calculator

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

6 thoughts on “Interest Penalty u/s 234A, 234B & 234C under Income tax act with example”

  1. 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..

  2. 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

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