Interest under Section 234A, B, and C


Today we are going to understand  Section 234 A, B, and C of Income Tax Act. This section imposes interest under these 3 sections. Let’s look these section:

234 A

We have to file an Income tax return for a financial year within the time limit. If you did not file your return within time or you did not file your return at all then interest will apply under this section. 

Under this section, you have to pay 1% per month simple interest on the amount of tax payable which is outstanding to pay. The amount is calculated from the due date of filing of return till the date you actually file your return.

But there are two conditions where you don’t need to worry about this section. First when you are eligible for a refund from the income tax department and second when you paid your taxes and there are no dues left to pay to the income tax department. This is because the amount of interest is calculated on the amount of tax outstanding and in these two cases there are no dues left, so the interest is not applicable.

Let’s look at an example:

If you have to pay a tax of Rs. 200,000 and you had already paid advance tax plus TDS of Rs. 100,000 then you only have to pay the net tax of Rs, 100,000 till the last date of relevant assessment year i.e 31 July and you pay the taxes on 28 Feb of next year then you have to pay interest for 7 months. Interest = Rs.7000 (Rs.100,000*7 months*1%) 

234 B

This section is related to the advance tax. The advance tax applies to you when you have to pay taxes in a financial year is Rs.10,000 or more. All the taxpayers including salaried employees, self-employed professionals, business, etc. are required to pay advance tax, where tax payable after reducing TDS already is Rs.10,000 or more. You have to pay the advance tax in the 4 installments on the due dates which are as follows:

  • You have to pay up to 15% of advance tax till 15th June.
  • You have to pay up to 45% of advance tax till 15th September.
  • You have to pay up to 75% of advance tax till 15th December.
  • You have to pay up to 100% of advance tax till 15th March.

In case you opt for the presumptive income you don’t have to pay in these installments you have to only pay advance tax 100% up to 15th March.

And when you don’t pay advance tax on time or not pay at all then you are liable to pay interest under this section. This interest is levied when your liability to pay tax after reducing TDS is Rs.10,000 or more and you don’t pay advance tax or you pay advance tax less than 90% of the assessed tax.

The interest is levied at the rate of 1% per month on assessed tax less advance tax already paid.

Let’s look at an example:

Your total tax liability is Rs100,000 and you paid this amount on 12th June while filing your return. You don’t pay TDS or advance tax till then. And your total tax liability is more than Rs 10,000, and hence you were liable to pay advance tax, now you will be liable to pay interest @1%. Interest = Rs.3000 (Rs.100,000 * 3 months * 1%)

234 C

This section also belongs to the advance tax which we discussed above. Under this section interest for late payment is at the rate of  1% on the amount of tax due. It is calculated from the one due date of installment to another, till the date of actual payment of outstanding taxes. The interest is calculated on the amount of tax installment you have to pay less the amount of tax already paid.

Let’s look at an example:

The last date to pay the first installment of advance tax is 15th June and you have to pay Rs.15,000 as advance tax but you only paid till then is Rs.5000 now the outstanding liability is of Rs. 10,000 for 3 months then the interest levied would be Rs.300 ( 10,000 * 3 months * 1%).

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