INTEREST PAYABLE U/S 234-A, 234-B & 234-C UNDER INCOME-TAX ACT

INTRODUCTION

Under the Income-tax Act, different types of interests are levied for various kinds of delays/defaults.

Under this Part, we will gain knowledge about the provision of sections 234-A, 234-B & 234-C.

it could be due to one of these below Reasons;

• Delay in Filling the return of income.

• Non-Payment/ Short Payment of advance-tax

• Non-Payment/Short payment of Individual or installment of advance-tax (Deferment of advance-tax)

COMPUTATION OF INTEREST UNDER THIS ACT. Before understanding the Provision, it is important to understand Rule 119A.

as per Rule 119A, while calculating the interest payable by the taxpayer or the interest payable by the Central Government to the taxpayer under any provision of the Act, the following rule shall be followed : a) where interest is to be calculated on annual basis, the period for which such interest is to be calculated shall be rounded off to a whole month or months. For this purpose, any fraction of a month shall be ignored and the period so rounded off shall be deemed to be the period in respect of which the interest is to be calculated; b) where the interest is to be calculated for every month or part of a month comprised in a period, any fraction of a month shall be deemed to be a full month and the interest shall be so calculated;

c) the amount of tax, penalty, or other sums in respect of which such interest is to be calculated shall be rounded off to the nearest multiple of one hundred rupees. For this purpose, any fraction of one hundred rupees shall be ignored and the amount so rounded off shall be deemed to be the amount in respect of which the interest is to be calculated. (E.g: if you want to calculate interest under 234-A on Rs 6954 for 6 months 20 days, then as per Rule 119A, while computing amount fraction of 100 to be ignored and net interest to be charged on 6900 and interest will be computed on 7 month period of 20 days will be considered as a full month.)

234-A [Interest For Delay in filling the return of Income]

Interest under section 234A is levied for delay in filing the return of income. In other words, if the taxpayer files the return of income after the due date specified in this regard or files an updated return, interest under section 234A will be levied. Example: Mr. Mishra is a Doctor. His tax liability for the F.Y 21-22 amounted to 13,000/-

the due date for filing the return is 31st July 2022. on the 10th of August 2022, he paid the taxes and filed the return. will he be liable to pay the interest under section 234-A?

Yes, He will be labile to pay the interest U/S 234-A with a 1% Rate of interest per month or part of a month.

234-B [Interest For Default in Payment of Advance tax]

Interest under section 234B is levied in the following two cases: a) When the taxpayer has failed to pay advance tax though he is liable to pay advance tax; or b) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax As per Section 208 of the Act, advance tax shall be payable by the taxpayer during the financial year if the estimated tax liability of the assessee during that the year is ten thousand rupees or more, shall pay his tax in advance in the form of "advance tax". Example: 1) Mr. Mishra has total tax liability is 50,000. He has paid advance tax of Rs 42,000 till 31st March. Balance tax of Rs 8000 is paid by him after Fillinging the return of income. will he be able to pay interest under section 234-B? Answer: NO, He will not be liable to pay interest under section 234-B because he has already paid advance tax of more than 90% 2)Mr. Mishra has total tax liability is 50,000. He has paid advance tax of Rs 30,000 till 31st March. Balance tax of Rs 20000 is paid by him after Filling the return of income. will he be able to pay interest under section 234-B? Answer: Yes, He will be liable to pay interest under section 234-B, because the Quantum of the advance tax he has paid is (60%) which is less than 90%. hence the net interest will be charged upon 20,000 @ 1% per month or part of the month. Note: [ Period of levy of interest u/s 234B: Interest will be levied from the 1st date of the assessment year i.e., from 1st April till the date of determination of income under section 143(1) or when a regular assessment is made, then till the date of such a regular assessment.]

3) Mr. Jha is a businessman. His tax liability as determined under section 143(1) is Rs. 32,400. He has not paid any advance tax but there is a TDS credit of Rs. 10,000 in his account. He has paid the balance tax on 31st July i.e. at the time of filing the return of income. Will he be liable to pay interest under section 234B, if yes, then how much? Answer: Yes, (after allowing credit of TDS) of Mr. Jha, Tax-Liabilities come to Rs. 22,400 (i.e. Rs. 32,400 – Rs. 10,000) which exceeds Rs. 10,000, and hence, he will be liable to pay advance tax. He has not paid any advance tax and hence, he will be liable to pay interest under section 234B. Interest under section 234B will be levied at 1% per month or part of the month. In this case, Mr. Jha has paid the outstanding tax on 31st July, and hence, interest under section 234B will be levied for the period from 1st April to 31st July i.e. for 4 months. Interest will be levied on the unpaid tax liability of Rs. 22,400. Interest at 1% per month on Rs. 22,400 for 4 months will come to Rs. 896.

234-C [Interest for default in payment of instalment(s) of advance tax]

Section 234C provides for levy of interest for default in payment of installment(s) of advance tax. Before getting into the detailed provisions of section 234C, lets recall the provisions relating to the payment of advance tax by a taxpayer. As per section 208, every person whose estimated tax liability for the year exceeds Rs. 10,000, shall pay his tax in advance in the form of “advance tax” by the following dates : Ref [Table-1 below]

STATUS	June (15th)	September(15th)	December (15th)	March(15th)
Taxpayer (other than who opted for presumptive taxation scheme of section 44AD or section 44ADA)	Upto 15% of advance tax	Upto 45% of advance tax	Upto 75% of advance tax	upto 100% of advance tax
Taxpayers who opted for presumptive taxation scheme ofsection 44AD or section 44ADA	NIL	NIL	NIL	Upto 100 % of Advance tax

Any tax Paid till 31st march will be treated as "Advance Tax". Basic Provision Interest under section 234C is levied, if the advance tax paid in any installment (s) is less than the required amount. In other words, interest under section 234C in case of deferment of different installments of advance tax is levied in the following cases: (A) In case of taxpayers (other than those who opted for presumptive taxation scheme under section 44AD or section 44ADA), interest shall be levied-  i) If the advance tax paid on or before 15th June is less than 12% of the advance tax payable. ii) If the advance tax paid on or before 15th September is less than 36% of the advance tax payable. iii) If the advance tax paid on or before 15th December is less than 75% of the advance tax payable. iv) If the advance tax paid on or before 15th March is less than 100% of the advance tax payable.

B)) In the case of taxpayers who opted for the presumptive taxation scheme of Section 44AD or section 44ADA interest shall be levied if the advance tax paid on or before 15th March is less than 100% of the advance tax payable. Rate of Interest: (Interest under section 234C for default in payment of installment (s) of advance tax is charged at 1% per month or part of a month. The nature of interest is simple interest. In other words, the taxpayer is liable to pay simple interest @ 1% per month or part of a month for short payment/ non-payment of individual installment (s) of advance tax.)

Note: [no levy of interest u/s 234-C if shortfall of advance tax is due to capital gains or winning from lottery e.t.c] Example: Mr. Jha is running a Cake shop. The tax Liability of Mr. Jha is Rs 45,500. He has paid advance tax as given below: #) Rs. 8,000 on 15th June, #) Rs. 11,000 on 15th September, #) Rs. 12,000 on 15th December, #) Rs. 14,500 on 15th March. Mr. Jha has not opted for the presumptive taxation scheme under section 44AD, will he be liable to pay interest U/S 234-C? Answer: As per section 208, Every person whose estimated tax liability for the year exceeds Rs. 10,000, shall pay his tax in advance in the form of “advance tax” by the following dates: Ref [Table-1 Above] [Conclusions as per Table-1]

1)In the first installment: Not less than 15% of tax payable should be paid by 15th June. The tax liability is Rs. 45,500 and 15% of 45,500 amounts to Rs. 6,825. Hence, he should pay Rs. 6,825 by 15th June. He has paid Rs. 8,000, hence, there is no short payment in case of the first installment. 2)In the second installment: Not less than 45% of tax payable should be paid by 15th September. Tax liability is Rs. 45,500 and 45% of 45,500 amounts to Rs. 20,475. Hence, he should pay Rs. 20,475 by 15th September. He has paid Rs. 8,000 on 15th June and Rs. 11,000 on 15th September (i.e. a total of Rs. 19,000 is paid till 15th September). There is short payment of Rs. 1,475 (i.e. Rs. 20,475 – Rs 19,000). Though there is a short payment of Rs. 1,475 Mr. Jha will not be liable to pay interest under section 234C because he has paid a minimum of 36% of advance tax payable by 15th September. He has paid Rs. 19,000 till 15th September and 36% of 45,500 amounts to Rs. 16,380. Hence, no interest shall be levied in case of deferment of the second installment.

3)In the third installment: Not less than 75% of tax payable should be paid by 15th December. Tax liability is Rs. 45,500 and 75% of 45,500 amounts to Rs. 34,125. Hence, he should pay Rs. 34,125 by 15th December. He has paid Rs. 8,000 on 15th June, Rs. 11,000 on 15th September, and Rs. 12,000 on 15th December (i.e. a total of Rs. 31,000 is paid till 15th December). There is a short payment of Rs. 3,125 (i.e. Rs. 34,125 – Rs 31,000). Hence, he will be liable to pay interest under section 234C on account of a shortfall of Rs. 3,125. 4)In the last installment: 100% of the tax payable should be paid by 15th March. The total tax liability of Rs. 45,500 is paid by Mr. Jha by 15th March (i.e. 8,000 on 15th June, Rs. 11,000 on15th September, Rs. 12,000 on 15th December, and Rs 14,500 on 15th March). Hence, there is no short payment in the case of the last installment. Thus, Mr. Khushal will not be liable to pay interest under section 234C in the case of the last installment.