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Interest Imposed by the IT Department – Section 234A

Updated on:  

08 min read

The due date for filing your income tax return for the FY 2019-20 is extended to 10th January 2021 for individual taxpayers. Unlike before, if you delay or miss the filing there are some legal repercussions. Not complying with Income Tax regulations often comes with strict consequences like having to pay interest based on Section 234 of the Income Tax Act

Latest Update

Union Budget 2021 Outcome:

Taxpayers need to pay advance tax on dividend income only after the declaration or payment of dividend. No interest under section 234C shall be charged on account of failure to estimate the dividend income resulting in a shortfall of advance tax payment, subject to if the advance tax liability is paid in the subsequent instalments after the declaration or payment of dividend.

Types of Interest

There are 3 different interest under section 234 :

ClearTax will walk you through the interest and the calculations in a  3-part series.

Introduction to Section 234A – Interest for Default in Filing Tax Return

Income Tax Returns for a financial year need to be filed within the time limit prescribed for each year for you. Your failure to file a return within this prescribed time or not file at all will attract this Interest. Use ClearTax to e-File if you haven’t e-Filed yet.

Now, when you do not file your returns or miss the due date, you could be in one of these 3 distinct positions:

  • You have taxes outstanding to be paid to the IT department
  • You are eligible for a tax refund from the IT department
  • Your taxes have been paid on time with no refund expected or taxes payable.

If you fall into buckets “2” or “3”, you do not have to worry too much about late filing of your tax returns as interest may not be applicable in these two scenarios. However, your Assessing Officer may still choose to charge some interest if he thinks it necessary.

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 or part of the 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 relevant financial year till the date that you actually file your return.

Illustration

Say, your total tax outstanding for F.Y 2018-19 is Rs 1 lakh (net of advance tax paid & TDS if any) and you file your return on the 31st March, 2020  instead of 31st August 2019, the due date to file income tax return for FY 2018-19.

You are now 7  months late in your tax payments. Interest = 100,000 x 1% x 7 = Rs. 7,000 This Rs. 7,000 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.

Click here to go to Part II

Related Articles

Interest Imposed by the IT Department on delay of advance tax payment – Section 234B

Interest Imposed by the IT Department on default of advance tax – Section 234C

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