Interest Penalty under Sections 234A, 234B & 234C

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:

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.

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.

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: