Interest on Late Payment of Income Tax is broadly divided into four categories :
234A - Interest on Late Payment of Income Tax After Due Date of Return
234b - Interest on Short Payment of Income Tax After End of Year
234C - Interest on Short Payment of Advance Tax
234B - Interest on Erroneously Excess Refund Paid by Income Tax
Let's understand each one in detail below:
Interest under Section 234A
Interest under Section 234A shall be levied if the Income-tax return is filed after the due date. Simple interest shall be charged at the rate of 1% per month or part thereof on the amount of tax payable.
Delay is not calculated in days but in months, For Example, if the Due Date is 15th August and the Return is filed on 02nd September then for interest calculation delay will be considered for 2 months (delay of part of month like even one day is considered full month delay)
In case of delayed return filing, the interest shall be charged for the period commencing from the date immediately following the due date for filing of return of income and ending with the date on which the return of income is furnished.
If the return of income is not furnished, interest shall be charged for the period commencing from the date immediately following the due date for filing of return of income and ending with the date on which the best judgment assessment is completed.
Interest under Section 234B
Interest under Section 234B shall be levied if the assessee has the liability to pay the advance tax but he fails to pay the same or the amount paid as advance tax is less than 90% of the 'assessed tax'.
Simple interest shall be charged at the rate of 1% per month or part thereof on the amount of assessed tax less advance tax paid (if any) for period of delays. Again in case of 234B Section , delay is calculated in months and not in days like explained above in an example.
The assessed tax is computed in following manner:
Particulars | Amount |
Tax on total income determined in Income Tax Return or in Summary Assessment [143 (1)] or Regular Assessment | xxx |
Less: |
|
| (xxx) |
| (xxx) |
| (xxx) |
| (xxx) |
Assessed Tax | xxx |
Interest under Section 234C
The advance tax is payable by an assessee in 4 instalments on or before the prescribed due dates.
To read in deailed about the advance tax and its calculation please read here.
However, an assessee, opting for presumptive tax scheme of Section 44AD or Section 44ADA, can pay the 100% of advance tax in a single instalment on or before March 15 of the previous year.
Interest under Section 234C is levied if assessee has the liability to pay the advance tax but he fails to pay the same or the amount paid in each instalment is less than the amount he should have paid in such instalments.
The interest is levied as follows:
In case of presumptive taxation scheme
When is interest payable? | Rate of interest | Period of interest | Amount on which interest shall be payable |
If advance tax paid on or before March 15 is less than 100% of assessed tax | 1% | 1 month | 100% of assessed tax less tax deposited on or before March 15 |
In case of any other tax payer
When is interest payable? | Rate of interest | Period of interest | Amount on which interest shall be payable |
If advance tax paid on or before June 15 is less than 12% of assessed tax | 1% | 3 months | 15% of assessed tax less tax deposited on or before June 15 |
If advance tax paid on or before September 15 is less than 36% of assessed tax | 1% | 3 months | 45% of assessed tax less tax deposited on or before September 15 |
If advance tax paid on or before December 15 is less than 75% of assessed tax | 1% | 3 months | 75% of assessed tax less tax deposited on or before December 15 |
If advance tax paid on or before March 15 is less 100% of assessed tax | 1% | 1 month | 100% of assessed tax less tax deposited on or before March 15 |
Thus , if short advance tax is paid i.e less than 12% of total tax in case of first instalment , than interest will be leived for full three months. Here in this case delay is directly calculated for 3 months and not for period of delay in payment. Similar is also in case of second , third and fourth instalment.
Interest under Section 234D
Where any refund is granted to an assessee on summary assessment (at 143(1)) but it is found on completion of regular assessment that no refund is due to the assessee or the amount refunded exceeds the amount refundable on regular assessment, the assessee shall become liable to pay interest under Section 234D on such amount of refund which was not actually due to him. The simple interest shall be charged at the rate of 0.5% per month or part thereof on excess amount refunded. The interest shall be charged for the period commencing from the date of grant of refund on completion of summary assessment under Section 143(1) and ending on the date on completion of regular assessment.
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