Advance Tax, Interest u/s 234A, 234B, 234C & Interest Calculator

Contents: 

1. Advance Tax

2. Interest for delay in filing the return of income [Section 234A]

3. Interest for default in payment of advance tax [Section 234B]

4. Interest for default in payment of instalment(s) of advance tax [Section 234C]

5. 234A, 234B 234C Interest computation calculator.

Advance Tax:

As per Section 208 of the Act, advance tax shall be payable by the taxpayer during the financial year if estimated tax liability of assessee during that year is Rs.10,000/- rupees or more.

As per section 208, every person whose estimated tax liability for the year exceeds Rs.10,000, shall pay his tax in advance in the form of “advance tax” by following dates.,​


Note: Any tax paid till 31st March will be treated as advance tax

Interest u/s 234A, 234B, 234C

Introduction

Under the Income-tax Act, different types of interests are levied for various kinds of delays/defaults. In this part, you can gain knowledge about the provisions of section 234A, 234B and 234C dealing with interest levied for

  1. Delay in filing the return of income;

  2. Non-payment or short payment of advance tax; and

  3. Non-payment or short payment of individual instalment or instalments of advance tax (i.e., deferment of advance tax.

Interest for delay in filing the return of income [Section 234A]

Under section 234A, interest is levied for delay in filing the return of income. In other words, if the taxpayer files the return of income after the due date specified in this regard, interest under section 234A will be levied.

Rate of interest:

Interest is levied at 1% per month or part of a month. The nature of interest is simple interest. In other words, the taxpayer is liable to pay simple interest at 1% per month or part of a month for delay in filing the return of income.

Note: It should be noted that while computing the period of levy of interest, part i.e. fraction of a month is considered as full month.

Period of levy of interest under section 234A:

Interest under section 234A is levied from the period commencing on the date immediately following the due date of filing the return of income and ending on the date of furnishing the return of income, or in case where no return has been furnished, on the date of completion of the assessment under section 144.

Illustration

Mr. Swaroop is a doctor. His tax liability for the financial year 2017-18 amounted to Rs.8,400. The due date of filing the return of income in his case is 31st July, 2018. On 5th August, 2018 he paid tax of Rs. 8,400 and filed his return of income. Will he be liable to pay interest under section 234A?

Answer:

Interest under section 234A is levied for delay in filing the return of income. The due date for filing the return of income in the case of Mr. Swaroop is 31st July, 2018 and he has paid the tax and filed the return on 5th August 2018. Hence, he will be liable to pay interest under section 234A on the outstanding tax liability

Interest for default in payment of advance tax [Section 234B]

Section 234B provides for levy of interest for default in payment of advance tax. And it is levied in the following two cases:

a) When the taxpayer has failed to pay advance tax though he is liable to pay advance tax; or

b) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax

Note: As per Section 208 of the Act, advance tax shall be payable by the taxpayer during the financial year if estimated tax liability of assessee during that year is Rs.10,000/- rupees or more.

Rate of interest:

Under section 234B, interest for default in payment of advance tax is levied at 1% per month or part of a month.

Amount liable for interest:

Interest under section 234B is levied on the amount of unpaid advance tax. If there is a shortfall in payment of advance tax, then interest is levied on the amount by which advance tax is short paid. The amount of unpaid/short paid advance tax is computed as follows:

Period of levy of interest:

Interest under section 234B is levied from the first day of the assessment year, i.e., from 1st April till the date of determination of income under section 143(1) or when a regular assessment is made, then till the date of such a regular assessment.

Illustration

Mr. Sandeep is a businessman. His tax liability as determined under section 143(1) is Rs. 28,400. He has not paid any advance tax but there is a TDS credit of Rs. 10,000 in his account. He has paid the balance tax on 31st July i.e. at the time of filing the return of income. Will he be liable to pay interest under section 234B, if yes, then how much?

Answer:

In this case, the tax liability (after allowing credit of TDS) of Mr. Sandeep comes to Rs. 18,400 (i.e. Rs. 28,400 – Rs. 10,000) which exceeds Rs. 10,000 and hence, he will be liable to pay advance tax.

He has not paid any advance tax and hence, he will be liable to pay interest under section 234B. Interest under section 234B will be levied at 1% per month or part of the month. In this case, Mr. Sandeep has paid the outstanding tax on 31st July and hence, interest under section 234B will be levied for the period from 1st April to 31st July i.e. for 4 months. Interest will be levied on unpaid tax liability of Rs. 18,400. Interest at 1% per month on Rs. 18,400 for 4 months will come to Rs. 736.

Interest for default in payment of instalment(s) of advance tax [Section 234C]

Section 234C provides for levy of interest for default in payment of instalment(s) of advance tax. Before getting into the detailed provisions of section 234C,

Interest under section 234C is levied, if advance tax paid in any installment(s) is less than the required amount. In other words, interest under section 234C in case of deferment of different installments of advance tax is levied in following cases:

(A) In case of taxpayers (other than those who opted for presumptive taxation scheme under section 44AD or section 44ADA), interest shall be levied, if advance tax paid

  • On or before 15th June is less than 12% of advance tax payable.

  • On or before 15thSeptember is less than 36% of advance tax payable.

  • On or before 15thDecember is less than 75% of advance tax payable.

  • On or before 15thMarch is less than 100% of advance tax payable.

(B) In case of taxpayers who opted for presumptive taxation scheme of Section 44AD or section 44ADA interest shall be levied if advance tax paid on or before 15th March is less than 100% of advance tax payable.

Exception:


No levy of interest under section 234C: 

Interest under section 234C is not levied, if, the shortfall in payment of advance tax is due to failure to estimate the amount of capital gains or income referred to in section 2(24)(ix) (i.e. winning from lotteries, crossword puzzle, etc.) or income from a new business or income referred to in section 115BBDA (i.e., dividend received from a domestic company exceeds Rs. 10,00,000) and the taxpayer pays the required advance tax on such income as a part of immediate following installments or till 31st March, if no installment is pending.

Rate of interest:

Interest under section 234C for default in payment of installment(s) of advance tax is charged at 1% per month or part of a month.

Period of levy of interest:

Interest under section 234C is levied for a period of 3 months, in case of short fall in payment of 1st, 2nd and 3rd installment and for 1 month, in case of short fall in payment of last installment.

Amount liable for interest:

Interest under section 234C is levied on the short paid amount of installment(s) of advance tax.

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