When interest u/s 234A, 234B and 234C are imposed by IT Department

Tony John , Last updated: 25 May 2024
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Republished with all the latest updates.

In this article, we will discuss Interest under section 234A, 234B, and 234C with practical examples.

Income tax act is the charging statute of income tax in India.

Income tax Act specifies certain time limits for filing Income tax returns to all the Assessee.

The Act inter alia requires that Income tax returns be filed in time, advance tax is paid correctly and within the time prescribed under the act. In case the assessee fails to comply with the provisions of the Act, interest shall be chargeable under Sections 234A, 234B and 234C.

This article aims to give clarity on the computation of Interest under the above-mentioned sections.

Here is brief overview of the sections to be discussed in detail:

Default in filing of tax returns – Section 234A
Default in payment of Advance Tax – Section 234B
Deferment of Advance Tax – Section 234C

Interest under section 234A – Default in furnishing the return of Income

If the assessee has not filed his return of income within the time limit prescribed, he shall pay simple interest @ 1% for every month or part of a month. It is calculated from the due date to date of furnishing the return.

Here the time limit prescribed means the time limits mentioned under section 139(1) i.e. 31st July in case of Individuals / HUF and 30th of September in all other cases.

Also, the interest under section 234A shall be charged from the date of the due date of the filing of return – till the date of the return filing along with payment of the tax.

However, no Interest u/s 234 A shall be charged where the tax payable is “NIL” or refund is available for the Assessee.

Example

A company files its return on 10th December. Due date under the Act is 30th September. Suppose the tax payable by the company is Rs.100000. Interest will be calculated as follows:

Tax = 100000

Delay = 3 months ie Oct, Nov, Dec.

Interest = 100000*3%= Rs.3000

Interest under section 234B- Default in payment of Advance Tax

If an assessee has to pay advance tax and he has not paid such tax or if the advance tax paid by him is less than 90% of the assessed tax, he shall pay simple interest @ 1% every month or part of a month.

It is calculated from April 1st of the next financial year to date of determination of total income under Section 143(1). But, if regular assessment u/s. 143(3) is completed, then interest is chargeable up to the date of regular assessment.

Interest shall be calculated on the amount equal to the assessed tax in case no advance tax is paid, or on the amount by which the advance tax paid falls short of the assessed tax.

Note: Advance Tax – It means you will be required to pay your tax based on the due dates given under the Income Tax Act. However, no advance tax is required to paid where tax to be paid is less than Rs. 10,000 or you’re senior citizen (not having any income from business or profession)

Tip to save Interest under section 234B – Pay at least 90% of your expected tax liability after TDS before 31st March.

Example

Mr. A has a tax liability of Rs.300000. TDS = Rs.50000

Advance tax payment details are as follows:

15th Sept 2023 Rs.30000
15th Dec 2023 Rs.50000
15th Mar 2024 Rs.55000
Total Rs.135000

Interest u/s 234B is calculated as follows

Particulars	Amount
Tax on income	Rs.300000
Less: TDS	Rs. 50000
Assessed tax	Rs.250000
90% of assessed tax = 250000*90%	Rs.225000

But, Advance tax paid = Rs.135000

Hence, 234B is attracted.

Shortfall = 250000 - 135000= Rs.115000

(Shortfall means difference between assessed tax and advance tax paid).

Interest under section 234 B = 115000*1%*4 months (Apr-July) = Rs.4600

Interest under section 234C – Deferment of Advance tax

Before we talk about Section 234C, we need to talk about the due dates of payment of advance tax.

Non-corporate assessee

Due date of Instalment	Amount payable
On or before the 15th September	30% of such advance tax.
On or before the 15th December	60% of total advance tax.
On or before the 15th March	100% of total advance tax

Corporate assessee

Due date of Instalment	Amount payable
On or before 15th June	15% of such advance tax
On or before the 15th September	45% of total advance tax
On or before the 15th December	75% of total advance tax
On or before the 15th March	100% of total advance tax

Section 234C is very simple.

If the advance tax paid is in underestimated instalments or if it s not paid at all, Section 234C gets attracted.

Interest is calculated on the difference between the installment paid and installment payable. This is how interest is calculated:

1% p.m. for a period of 3 months for every deferment.

But, for the last installment on 15th March, interest would be 1% for 1 month only.

Here it is important to note that – if the payment of the tax due is on account of –

Capital Gains
Winnings from lotteries, crossword puzzles, races (including horse races), card games and any other activity in the nature of gambling, betting etc.

and if the assessee has paid the amount of tax payable in respect of the above-mentioned income as part of the remaining installments of advance tax which are due or where no such installments are due, by the 31st March of the financial year, no interest shall be leviable in respect of such shortfall.

Example

Mr. A gives the following details:	Payment of advance tax:
Tax on total income = Rs. 500000 TDS = Rs.50000	15 Sept 2023 = Rs.75000 12 Dec 2023 = Rs.125000 15 Mar 2024 = Rs. 200000 Total = Rs. 400000

Solution:

Tax	Rs. 500000
TDS	Rs. 50000
Assessed tax	Rs.450000

Interest is computed as under:

DATE	AMOUNT PAYABLE	AMOUNT PAID	DIFFERENCE	INTEREST CHARGED
15 Sep	30% of 4,50,000 = 135000	75000	60000	60,0001%3 months = 1800
12 Dec	60% of 4,50,000 = 270000	200000	70000	70,0001%3 months = 2100
15 Mar	100% of 4,50,000 = 450000	400000	50000	500001%1 month = 500
			TOTAL INTEREST U/S 234C	Rs. 4400