In-depth study of interests imposed under section 234A, 234B and 234C

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Much like how it’s important to know about the various tax relief measures provided by the Income Tax Act, it’s also essential that you keep yourself updated about the various interest fees and penalties charged therein. A key part of this exercise is learning about the interest imposed under sections 234A, 234B, and 234C of the Income Tax Act.

Here’s an in-depth look at why the interest under these sections is charged:

Interest under section 234A

The 31st of July of every financial year is the due date set by the Income Tax department for filing income tax returns. Often, owing to various reasons, the authorities even extend the due date. If a notification regarding an extension is released, the date mentioned therein would serve as the due date for filing your income tax return. Many taxpayers, however, often take filing of income tax returns lightly. This is unfortunate because it can lead to unpleasant legal consequences.

If there’s any delay in filing of tax returns, the Income Tax department is authorized to levy penal interest. This levy of interest is covered under section 234A of the Income Tax Act. Additionally, if you haven’t filed the return within the due date, and if you have any outstanding tax that is yet to be paid, the assessing officer will levy a simple interest of 1 percent per month (or part of the month) on your outstanding tax amount. Calculation of the interest typically starts from the due date of filing of the return till the date you actually file the return. The penal interest payable will quickly skyrocket if you have unpaid taxes in addition to a delayed income tax return. 

Interest under section 234B

An individual whose estimated tax liability exceeds Rs. 10,000 in a financial year is required to pay advance tax. Section 234B of the Income Tax Act deals specifically with the levy of penal interest for any default in the payment of this advance tax. Interest under section 234B is levied by the assessing officer in either of the two following scenarios: 

1. When you have not paid any advance tax even though you are liable to do so 
2. When the amount of advance tax that you have paid is less than 90 percent of the assessed tax

The 234B interest that will be charged in the event of any default is calculated at 1 percent per month (or part of the month) on the amount of unpaid advance tax. The advance tax payments made are deducted from the assessed tax to arrive at the unpaid amount.

Interest under section 234C

According to the provisions of the Income Tax Act, an individual assessee who is liable to pay advance tax must do so in 4 separate instalments over the course of a financial year. The due dates for payment of advance tax are given in the table below.

However, if there is any delay in the payment of either one or more advance tax instalments, the tax department can levy penal interest under section 234C of the Income Tax act. Similar to both section 234A and 234B interest, the assessing officer will levy penal interest of 1% on the amount of tax that is due. The calculation of interest is done from the individual cut-off date till the date of actual payment of tax. 

To better understand the concept, let’s look at an example. Say if you’re required to pay an advance tax of Rs. 5000 on the 15th of June and you end up paying it only on the 15th of August. In this case, as there has been a delay of 2 months, you will have to pay Rs. 100 [1% of Rs. 5000 for each of the 2 months] as penal interest for the delay in payment of advance tax.

Conclusion

By understanding the interest levied under these sections you can ensure that you don’t transgress any of the rules or due dates stipulated in the Income Tax Act. File your returns on time, look up whether you need to pay advance tax, and pay the installments on time if you’re required to. These simple steps can keep you from suffering the burden of additional interest.

A final word

In order to further decrease your tax burden, you can opt for a variety of tax-saving instruments that enable you to avail deductions. One such investment is a term insurance policy, through which you get tax deductions of up to Rs. 1.5 lakhs under Section 80C and 10(10D).  You can learn more about Term Insurance by browsing the website for the various Term Plans offered by PNB MetLife.

The income tax is levied on all earning individuals who fall under a taxable income bracket. The income tax is paid to the Government of India and is charged annually. However, there are several tax deductions and exemptions that you can claim to lower your tax liability. The Income Tax Calculator helps you ascertain your tax output for a financial year based on your taxable income. This can help you plan well and save tax using the tax-saving deductions and exemptions, if possible.