Paying taxes and filing Income Tax Returns are not mandatory but they surely are the responsibility of every Indian citizen. The government clearly states that if an individual earns a certain amount of income in a year, he needs to pay the income tax. Failure in paying the tax or filing the ITR can lead to heavy penalties that would be borne by the individual. It is in your best interest to file your Income Tax Returns on a regular basis that too within the period allotted. It not only makes you a law-abiding citizen but also saves you from being penalised by the government.
There are certain types of interests that are urged upon the taxpayer in case there has been non-payment of taxes. In order to learn calculating interest penalty under sections 234A, 234B and 234C, let us learn what causes a penalty:
| Causes of the Penalty | Section |
|---|---|
| Delay in the filing of Income Tax Return | 234A |
| Delayed Payment of Advanced Tax | 234B |
| Delayed Payment of Advanced Tax Instalment | 234C |
The Income Tax Return has to be filed at the end of a financial year, a failure to do so can lead to penalty charged by the IT department. In the case of an outstanding tax, payment of the balance amount and filing of the ITR can be done before 31 July of the assessment year. But, if this date is also missed then the taxpayer is levied with interest charged at a simple interest at the rate of 1% of the outstanding amount every month. The interest, in such cases, is calculated from the 1st day after due date till the date of actually filing returns. While calculating the interest, a fraction of the month is also considered to be a full month.
In order to learn about calculating interest penalty under Sections 234A, let us take the help of this example,
Ravi, a salaried employee, has an outstanding tax that amounts to INR 3 lakhs. He forgets to file his return before 31 July and now pays it on 15 January. So, as he is late in his payments, he will be penalised in the following way:
Interest (Penalty) = Outstanding Tax X 1% X Number of months (delayed)
= 3,00,000 X 1% X 6
= INR 18,000
Therefore, Ravi would now have to pay INR 18,000 as penalty which is over and above his outstanding tax. Not paying his dues till March, he will be charged at the rate of 1% per month till the end of the financial year that is 31 March.
If an individual’s total payable tax in a financial year is more than INR 10,000, then he is liable to pay advance tax. An advance tax is the income tax that has to be paid in the same year in which the income has been earned. As per Section 44AD, when a taxpayer has a business that has 8% turnover on a tentative basis, he is not subject to pay the advance tax. Senior citizens too, who do have an income enjoy tax benefits under this section.
Under Section 234B, the taxpayer must pay at least 90% of the tax that is due to be paid at the end of the financial year. In case the payment of advance tax is delayed, then a charge at the rate of 1% of the outstanding amount will be levied on him as a penalty. For the ease of the taxpayer, the advance tax can be paid on a quarterly basis.
In order to learn about calculating interest penalty under Section 234B, let us take the help of this example,
Meena has an outstanding tax that amounts to INR 2 lakhs. After application of TDS, the amount left was INR 1,82,650. On 25 March, Meena paid INR 7,000 and she paid the balance amount of INR 10,350 on 20 July.
Meena should have paid 90% of the total assessed tax. Assessed tax is basically the tax that the taxpayer estimates. It is a rough idea on the basis of which he pre-pays his tax.
Assessed tax= Total Tax – TDS. Let us find out the assessed tax.
= INR 2,00,000 – INR 1,82,650
= INR 17,350
So, it is clear that INR 17,350 was the assessed tax and 90% of it should have been paid that comes out to be INR 15,615. As Meena paid only INR 7,000, she will be penalised. Now, she would have to pay,
Interest (Penalty) = Outstanding Tax X 1% X Number of months (delayed)
= INR 15,600 (figure rounded) X 1% X 4
= INR 624
Therefore, Meena would now have to pay INR 624 as penalty which is over and above her outstanding tax.
To make the ITR filing stress-free for the taxpayer, the Income Tax Department keeps innovating different ideas. The taxpayer has the provision to pay his tax in the form of 4 instalments. Under Section 234C, a penalty is imposed if the tax payment is delayed. The due dates for paying the Advance tax are:
| Due Date | Amount Due | Rate of interest |
|---|---|---|
| On or Before 15 June | 15% of Amount* less tax already deposited before June 15 | Simple Interest @ 1% per month or part of the month for 3 months |
| On or Before 15 September | 45% of Amount* less tax already deposited before September 15 | Simple Interest @ 1% per month or part of the month for 3 months |
| On or Before 15 December | 75% of Amount* less tax already deposited before December 15 | Simple Interest @ 1% per month or part of the month for 3 months |
| On or Before 15 March | 100% of Amount* less tax already deposited before March 15 | Simple Interest @ 1% per month or part of the month for 1 month |
In order to learn about calculating interest penalty under Section 234C, let us take the help of this example,
Seema has a Total tax liability of INR 1 lakh that has to be paid in instalments. The break-up of the payments is as follows:
| Due Date | Advance Tax that is payable | Total Advance Tax that is paid | Cumulative Shortfall | Cumulative Penalties |
|---|---|---|---|---|
| Before or on 15 June | 15,000 | 5,000 | 10,000 | @1% * 3*10,000 = 300 |
| Before or on 15 September | 45,000 | 25,000 | 20,000 | @1% * 3 *20,000=600 |
| Before or on 15 December | 75,000 | 35,000 | 40,000 | @1% * 3 *40,000=1200 |
| Before or on 15 March | 1,00,000 | 50,000 | 50,000 | 1% * 1 *50,000=500 |
What is an advance tax?
An advance tax is the income tax that has to be paid in the same year in which the income has been earned. If an individual’s total payable tax in a financial year is more than INR 10,000, then he is liable to pay advance tax.
What do you mean by Section 234A?
Failure in filing your Income Tax Returns on or before the due date 31 July of the assessment year can lead to the payment of a penalty by the IT department. If this date is missed then the taxpayer is levied with a charged a simple interest at the rate of 1% of the outstanding amount every month.
What is the formula for calculating interest penalty under Section 234A?
Interest (Penalty) = Outstanding Tax X 1% X Number of month (delayed)
What do you mean by Section 234B?
Under Section 234B, the taxpayer must pay at least 90% of the tax that is due to be paid at the end of the financial year. In case the advance tax payment is delayed, then a charge at the rate of 1% of the outstanding amount will be levied on him as a penalty.
What do you mean by Section 234C?
The taxpayer has the provision to pay his tax in the form of 4 instalments. Under Section 234C, a penalty is imposed if the tax payment is delayed.
I am 4 months 10 days late in filing my ITR, how to calculate interest penalty under Section 234A?
While calculating the interest, a fraction of the month is also considered to be a full month. So, if you are 4 months 10 days late, the interest will be charged for 5 months. You may use the formula: Interest (Penalty) = Outstanding Tax X 1% X Number of months (delayed).
What is assessed tax?
Assessed tax is basically the tax that the taxpayer estimates. It is a rough idea on the basis of which he pre-pays his tax. Assessed tax = Total Tax – TDS
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