Interest on late income tax payment


Assesses are required to pay interest and penalties if they fail to pay income tax (self-assessment tax or advance tax) on time or before the deadline. According to Sections 234A, 234B, and 234C of the Income-Tax Act, the Income Tax Department may levy late payment interest in the event that an income tax return is filed late, advance tax is not paid in full or is paid in insufficient amounts, or individual advance tax instalment payments are not paid in full or insufficient amounts.

Under Section 234A, interest

If the income tax return is not filed on time, Section 234A’s late payment interest provisions will apply. The tax would be subject to interest at the rate of 1% per month (simple interest).

Penalty on late payment income tax

Pay as you earn tax, also known as advance tax, is tax that is paid forward, in instalments, on specific dates that are established by the Income Tax Department. It’s crucial to be aware of these deadlines and pay your advance tax on time. If a business or individual’s total tax burden exceeds Rs. 10,000 in a fiscal year, whether they are salaried or self-employed, they are required to pay advance tax.

Senior citizens (60 years of age and older) without a business or occupation are the only people who are free from this rule. The failure to pay advance tax on time or to be aware of the deadlines can result in late or non-payment, both of which carry significant

interest and penalty charges. Recognize the significance of paying advance tax and the associated deadlines to avoid this.

Section 234A: Failure to file a tax return on time

At the conclusion of each fiscal year, the Income Tax Return must be filed; failure to do so may result in a penalty assessed by the IT department. If there is an unpaid tax balance, the ITR can be filed and the payment made by July 31 of the assessment year. However, if this deadline is also missed, the taxpayer will be assessed simple interest at a monthly rate of 1% of the unpaid balance. In these situations, the interest is calculated from the first day after the due date until the day that the returns are actually filed. A portion of the month is considered when computing the interest.

Interest Charged for Prompt Payment of Advance Tax

There are four dates by which you must pay advance tax before the end of the fiscal year: June 15, September 15, December 15, and March 15.

You will be required to pay interest on the overdue amount if your advance tax is not paid on time. The amount of interest due may be rounded up or down to the closest hundred.

This interest fits into two categories:

Sections 234C Section 234B

Interest for Default in Advance Tax Payment Regarding Section 234B

A 1% interest rate will be applied under this provision if you do not pay 90% of the tax due before the end of the fiscal year. In other words, you will be required to pay 1% simple interest on the tax dues if you have either not paid any tax for an assessment year or less than 90% of the advance tax due. This would be seen as a tax payment default.

Interest is calculated from April 1 of the new fiscal year until total income is determined under Section 143(1) or until self-assessment tax is paid, whichever comes first, if you haven’t paid tax as of the start of the next fiscal year.

Additionally, if the Income Tax Department issued you a refund but upon assessment it was determined that the taxpayer was entitled to no refund or a refund less than the amount issued, you would be required to restore the excess refund together with interest of 0.5%.

Computations in Section 234B

To better understand how advance tax is determined under Section 234B, consider the following examples of advance tax calculations:

Example 1:

The total amount of taxes due by Sreekanth is Rs 54,000. On July 9th, he made this payment while submitting his tax returns. His entire tax debt exceeds Rs. 10,000, which necessitates the payment of advance tax and interest under Section 234B.

To figure out the interest:

54,000 rupees multiplied by 1% over the course of four months equals 2,160 rupees.

According to Section 234B, Sreekanth must pay an advance tax of Rs. 2,160.

Examples 2:

Arbaaz owes Rs. 1,55,000 in taxes for the fiscal year. TDS was deducted from his total income in the amount of Rs. 1,35,700. He made a payment of Rs 5,000 on March 25 and paid the remaining Rs 14,300 when he filed his taxes on July 20. Does Section 234B require that he pay interest?

His assessed tax is equal to Rs. 19,300 (TDS deducted from the total tax of Rs. 1,55,000).

He would not have had to pay interest if he had paid 90% of the assessed tax, or Rs 17,370, by the deadline on March 31.

However, because he only made a payment of Rs 5,000 by the deadline, he now must pay interest, which is computed as follows:

Assessed tax of Rs. 19,300 less advance tax of Rs. 5000 equals Rs. 14,300.

4 months of 1% of Rs. 14300 is Rs. 572.

He must therefore pay the interest required by Section 234B, which is Rs. 572.

FAQs about Interest and Penalties on Advance Taxes

How many advance tax instalments must be paid in a single fiscal year?

Advance tax must be paid on 15 September, 15 December, and 15 March of each fiscal year in three instalments of 30%, 40%, and 60%.

Is there a penalty for paying advance tax late?

If you don’t pay your advance tax on time, you will need to pay interest.

How can I prevent being subject to Section 234C interest?

Payment of advance tax on time and in accordance with the scheduled dates notified by the Income Tax Department is the only option to avoid paying interest under Section 234C.

What is the amount of interest required per Section 234B?

For advance tax payment defaults, interest under Section 234B is 1% every month or portion of a month.

Does Section 234B also apply to people who are employed?

Yes, salaried people are also covered under Section 234B.