1. Types of Interest
There are 3 different interest under section 234 :
- Delay in filing of Tax Returns – Section 234A
- Delay in payment of Advance Tax – Section 234B
- Deferred Payment of Advance Tax – Section 234C
ClearTax will walk you through the interest and the calculations in a 3-part series.
2. 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 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.
Say, your total tax outstanding is Rs 1 lakh (net of advance tax paid & TDS if any) and you file your return on the 15th December instead of 31st July of the assessment year, the due date to file income tax return. You are now 5 months late in your tax payments. (The 15 day period in December is treated as a month).
Interest = 100,000 x 1% x 5 = Rs. 5,000
This Rs. 5,000 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. In the example above, your liability would be 8% of Rs. 1 lakh, which is Rs 8,000.