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Late ITR filing and Interest Penalties under Sections 234A, 234B & 234C

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Published on January 23, 2023. EST READ TIME: 3 minutes

Paying income taxon time is not just our responsibility but also our duty, as the important public programmes and services run by the government for our betterment are financed properly when we pay our taxes on time. You can plan better to pay your taxes on time because if you end up delaying your payments, you will have to pay a fine. Let’s learn more about various types of defaults listed under Section 234A, Section 234B, and Section 234C of the Income Tax Act.

Section 234A: Delay in filing Income Tax Return

As we are aware, all taxes should be filed at the end of the financial year and as per the due dates laid down by the Income Tax Department. If you miss the due date, you will be liable to pay the penalty. If there’s an outstanding tax, you should pay the balance amount and file income tax returns on or before July 31 of the assessment year. If you miss this date also, you will be charged a simple interest rate of 1% of the outstanding tax amount every month.

Calculating Interest Penalty under sections 234A

Suppose you have an outstanding tax of INR 3 lakh. You miss filing your income tax return by July 31, and then you pay it in December. The interest penalty will be charged as per the below calculation: Penalty = Outstanding tax*1%*no of months = 3,00,000*1%*5 = INR 15,000. So, you have to pay INR 15,000 in addition to the outstanding tax amount.

Section 234B: Incomplete Payment of Tax

If you must pay a tax of INR 10,000 or more in a fiscal year after TDS, you are liable to pay advance tax, which must be paid in the same year you earned your income. The advance payment amount must be at least 90% of the assessed tax. If you fail to pay advance tax by the due date, you will be liable to pay an interest penalty under 234B. The interest penalty is also applicable if you have paid advance tax, but it is less than 90% of the assessed tax. In case of incomplete payment of tax, the interest penalty is charged at 1% of the outstanding amount for the number of months delayed. This tax applies to salaried employees and self-employed individuals. Senior citizens, who don’t have any income from business or profession, are not required to pay advance tax.

Calculating Interest Penalty under Sections 234B

How the interest penalty is calculated can be best explained with an example. Let’s say your total tax amount isINR1,50,000. After a TDS of INR1,35,627, you paid INR 5,000 as advance payment before 31st March and the remaining amount of INR 9,373 while filing your income tax return. Are you liable to pay an interest penalty? Let’s check.

Assessed tax= INR 1,50,000 (total tax)- INR 1,35,627 (TDS) = INR 14,373. Advance payment will be 90% of the assessed tax, which is INR 12,935. Since you have paid only INR 5,000, you are liable to pay an interest penalty under Section 234B.

So, the calculation is:

Interest penalty=Outstanding tax*1%*number of months delayed.

Section 234C: Delay in Periodic Payment of Tax

A taxpayer has the option to pay tax in 4 instalments. However, if there’s a delay in advance payment or periodic payment of tax, a penalty is imposed under Section 234C:

DUE DATE	AMOUNT DUE	RATE OF INTEREST
On or before 15 June	If 15% of amount is already deposited before 15 June, amount due is 15% of amount minus (-) tax already deposited	Simple interest at 1% per month for 3 months
On or before 15 September	If 45% of amount is already deposited before 15 Sept, amount due is 45% of amount minus (-) tax already deposited	Simple interest at 1% per month for 3 months
On or before 15 December	If 75% of amount is already deposited before 15 Dec, amount due is 75% of amount minus (-) tax already deposited	Simple interest at 1% per month for 3 months
On or before 15 March	If 100 % of amount is already deposited before 15 March, amount due is 100% of amount minus (-) tax already deposited	Simple interest at 1% per month for 3 months

Calculating Interest Penalty under Section 234C

Suppose you must pay INR 1 lakh as tax, and you have chosen to pay in 4 instalments, the interest penalty under Section 234C is calculated as:

DUE DATE	ADVANCE TAX PAYABLE	ADVANCE TAX PAID	AMOUNT DUE	PENALTY @1%
On or before 15 June	15,000	5,000	10,000	@1% * 3*10,000 = 300
On or before 15 Sept	45,000	25,000	20,000	@1% * 3 *20,000=600
On or before 15 Dec	75,000	35,000	40,000	@1% * 3 *40,000=1200
On or before 15 March	100,000	50,000	50,000	1% * 1 *50,000=500

FAQs

1. Is Section 234C applicable to salaried employees?

Yes, all salaried employees, businessmen, and self-employed professionals are required to pay advance tax if their total tax amount is Rs 10,000 or more after TDS.

2. What is Assessed Tax?

Assessed Tax is the tax that an individual must pay. It is calculated by subtracting TDS from your total tax amount.

3. What is Advance Tax?

If an individual’s tax liability is INR 10,000 or more in a financial year, he/she has to pay advance tax. The advance tax should not be less than 90% of the assessed tax.Otherwise, a penalty will be charged.

Conclusion

As responsible citizens, all taxpayers must pay income tax or file income tax returns before the due dates given by the Income Tax Department. Failure to do so can lead to heavy penalties, which have to be paid by the taxpayer in addition to the tax amount. As you keep track of the renewal date of your medical insurance plan and pay your health insurance premium on time, it is equally important to know about the due dates when it comes to paying your taxes and avoiding a penalty. So, to avoid such penalties, it’s important to be aware of the due dates of paying taxes and the interest penalty charged under various sections of the IT Act.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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