Interest Under Section 234A/B/C - Explained

Every person is required to file Income tax returns and pay taxes in India if their taxable income exceeds basic exemption limit. Defaults in payment of taxes or filing income tax returns will lead to huge interest and penalties under different sections of income tax.

This document covers

Interest u/s 234A - Interest for default in furnish Income tax return
Interest u/s 234B - Interest for non-payment or short payment of advance tax
Interest u/s 234C - Interest for deferment of Advance Tax
234F - Fee for default in furnishing Income Tax Return

1. Interest u/s 234A - Interest for default in furnish Income tax return

Rate of interest: If the income tax return is not filed within due date of filing u/s 139(1), interest u/s 234A will be charged at the rate of 1% for every month or part month.
Period of interest: Interest will be levied from the day immediately following the due date to the date of filing income tax return.
The due date for filing income tax return for individuals, firms, LLP’s, HUF etc who don’t required tax audit is July 31 and for the companies and others who require tax audit is Oct 31

Example:

Mr Krishna is a salaried employee, and he has other incomes like interest and rental income for FY 2021-22. He has a tax liability of Rs 60,000 and he has filed his income tax return in Oct 2022. As he as missed the deadline of July 31, he is liable to pay interest u/s 234A. The interest calculation is as follows.

Original Due date - 31st Jul 2022
Actual date of filing - 15th Oct 2022
Delay in no of months - 3 months (Aug, Sep and Oct)
Interest is 60000 * 1 * 0.03 = 1800

NOTE:

Interest u/s 234A will not be charged on self-assessment tax paid by the taxpayer on or before the due date of filing income tax return.

2. Interest u/s 234B - Interest for non-payment or short payment of advance tax

Rate of interest: If the taxpayer who is liable to pay advance tax fails to pay advance tax or the paid advance tax is less than 90% of tax payable, interest u/s 234B will be levied at the rate of 1% for every month or part of month.
Period of interest: Interest will be levied from the 1st April of the following financial year to date of determination of total income u/s 143(1) i.e., till date of tax paid
Amount on which interest is payable:
- If no advance tax paid - interest needs to be paid on total tax payable
- If advance tax paid falls short of 90% of tax payable – Total tax payable-Advance tax paid
The total tax payable for the purpose of 234B should exclude TDS, Relief u/s 89, 90,90A or 91

Example:

Mr Arjun has total tax liability of Rs 90,000 for FY 2021-22 and he has TDS of Rs 20,000 and not paid any advance tax before March 31 2022. He has paid the taxes while filing his ITR in July 2022.As he has not paid 90% of total tax payable as advance tax, he is liable to pay interest u/s 234B. Interest calculation is as follows.

Tax payable - 90,000
Less: TDS - 20,000
Total Tax payable = 70,000
Date of tax payment - 31st Jul 2022
Delay - 4 months (April, May, June and July)
Interest is 70,000 * 1 * 0.04 = 2800

For Understanding Learn More On @ Interest for non-payment or shot payment of advance tax

3. Interest u/s 234C - Interest for deferment of Advance Tax

Advance tax should be paid at regular quarterly intervals and if the taxpayer fails to pay the specified percentage of advance tax, then the taxpayer is required to pay interest u/s 234C.
Rate of Interest: Interest u/s 234C is levied at the rate of 1% per month or part of month.
Period of interest: Interest will be levied for a period of 3 months in case of shortfall of payment for 1st , 2nd , 3rd and levied for 1 month in case of shortfall of payment for 4th instalment (Last)
Manner of computation of 234C

Particulars	Upto 15th June	Upto 15th September	Upto 15th December	Upto 15th March
Taxpayers other than those opting for presumptive u/s 44AD and 44ADA	Upto 15% total tax Period: 3months	Upto 45% of total tax Period: 3months	Upto 75% of total tax Period: 3months	Upto 100% of total tax Period: 1month
Taxpayers opting for presumptive u/s 44AD and 44ADA	Nil	Nil	Nil	Upto 100% of total tax Period: 1 month

NOTE:

If the advance tax paid by the taxpayer on or before 15th June and 15th September is not less than 12% or 36% of the tax due, then the taxpayer is not liable for interest u/s 234C

★ Non-Applicability of interest u/s 234C in certain cases

Interest u/s 234C is not levied in respect of shortfall in advance tax payment if such shortfall is on account of under estimate or failure to estimate

The amount of capital gains
Winnings from lotteries, crossword puzzles etc
Income from Business/profession for the first time
Amount of dividend income u/s 2(22)(a)(b)(c)(d)

NOTE-1:

The taxpayers who is liable to pay advance tax of less than Rs 10,000 will not attract 234B and 234C interest

NOTE-2:

Resident Senior Citizens who have passive source of income like interest, Rent and not having income from business/profession need not pay advance tax

For Understanding Learn More On @ Non-Applicability of interest u/s 234C

4. 234F - Fee for default in furnishing Income Tax Return

If the taxpayer income is less than Rs 5 lakhs and not filed his income tax return within due date, he is required to pay a penalty of Rs 1000
If the taxpayer income is more than Rs 5 lakhs and not filed his income tax return within due date, he is required to pay a penalty of Rs 5000