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interest calculation

STARK (Student) (162 Points)

03 April 2018

234A, B, C how to calculate

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RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 03 April 2018

https://finotax.com/income-tax/intt234-ay1718

https://cleartax.in/s/interest-imposed-by-income-tax-department-under-section-234c

Please go to above said links you can get some clarity about Interest u/s 234A, 234B and 234C...

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Rahul Prajapati (Student) (2282 Points)
Replied 03 April 2018

Section 234 of the Income Tax Act.

Default in filing of Tax Return – Section 234A

Default in payment of Advance Tax – Section 234B

Deferment of Advance Tax – Section 234C

Default in filing of Tax Return – Section 234A

If you have unpaid taxes that are outstanding and you have not filed your returns by the due date, you are in for trouble.

You will be charged an interest amount of 1% per month (simple interest) on the tax amount outstanding. This interest will be calculated from the due date applicable to you for filing of return of the applicable year till the date that you actually file your return.
Illustration:

Let’s say that your total tax outstanding is Rs 1,00,000 (net of advance tax paid & TDS if any) and you file your return on the 15th December instead of 5th August of the assessment year, when you were actually supposed to file your return. You are now 5 months late in your tax payments. (The 15 day period in December is treated as a month).

Interest = 100,000 x 1% x 5 = Rs. 5,000

This Rs. 5,000 is over and above the tax amount that you will be paying in any case.

If you do not file your return at all, you will have to pay 1% interest till the end of the assessment year i.e. 31st March. In the example above, your liability would be 8% of Rs. 1,00,000 which is Rs 8,000.

Rahul Prajapati (Student) (2282 Points)
Replied 03 April 2018

Section 234 B
(Interest for not Paying Advance Tax)

Advance Tax means paying your tax dues based on the dates (usually quarterly) provided by the income tax department. If you don’t pay advance tax, you may be liable to pay interest under section 234B.

Who needs to pay Advance Tax?
All assesses including salaried employees, self-employed professionals, businessmen etc. are required to pay Advance Tax where the tax payable is Rs 10,000 or more.

Late Payment Interest

Here are the two situations in which interest is applicable –

- You tax liability for the financial year is more than Rs 10,000 and you did not pay any advance tax.

You paid advance tax but advance tax paid is less than 90% of ‘assessed tax’

In any one of the cases, interest under section 234B shall be applicable.

Interest is calculated @ 1% on Assessed Tax lessAdvance Tax.

Part of a month is rounded off to a full month. The amount on which interest is calculated is also rounded off in such a way that any fraction of a hundred is ignored.

Illustration 1

Radhika’s total tax liability is Rs 48,000. Radhika paid this amount on 12th June while filing her return.
Radhika’s total tax liability is more than Rs 10,000, she was liable to pay advance tax. Therefore, Radhika will be liable to pay interest under section 234B.

Interest calculation

Rs 48,000 x 1% x 3 (April, May, June)
= Rs 1,440

Radhika is liable to pay Rs 1,440 interest as per section 234B.

Rahul Prajapati (Student) (2282 Points)
Replied 03 April 2018

Section 234 C
(Interest for Deferred Payment of Advance Tax)

Advance tax is paid on the following dates of a financial year:

On or Before	In case of all taxpayers other than taxpayer opting for presumptive income u/s 44AD	Taxpayers opting for presumptive income u/s 44AD
15th June	Up to 15% of advance tax payable	NIL
15th September	Up to 45% of advance tax payable	NIL
15th December	Up to 75% of advance tax payable	NIL
15th March	Up to 100% of advance tax payable	Up to 100% of advance tax payable

Interest

The interest for late payment is set at 1% simple interest on the amount of tax due, calculated from the individual cut off dates shown above, till the date of actual payment of outstanding taxes.

Illustration
Consider that your total tax liability for this financial year is Rs. 100,000 it needs to be paid in installments as explained above

If however, you made partial payments instead, you will be liable to pay interest as per the last column in the table below:

Payment Dates	Advance Tax payable	Total Advance Tax paid	Shortfall (Cumulative)	Penalties (Cumulative)
15th June	15,000	5,000	10,000	*@ 1% 310,000 = 300*
15th September	45,000	25,000	20,000	*@ 1% 3 20,000=600*
15th December	75,000	35,000	40,000	*@ 1% 3 40,000=1200*
15th March	1,00,000	50,000	50,000	*1% 1 50,000=500*