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:
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.
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.
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.
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 the first, second & third installment.
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:
- 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.
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).