Section 234A, 234B, and 234C of Income Tax Act: Interest on Delayed and Non-Payment of Tax.
When it comes to income tax compliance, timely filing of returns and payment of advance tax are crucial. Sections 234A, 234B, and 234C of the Income Tax Act deal specifically with the interest levied on delayed filing of returns, delayed payment of advance tax, and deferment of advance tax, respectively. Understanding these sections is essential for taxpayers to avoid hefty interest charges.
Circumstances in Which Interest is Charged
Section 234A: Interest for Delay in Filing Return of Income
Interest under Section 234A is charged if a taxpayer fails to file their income tax return by the due date. The interest is calculated from the due date till the actual date of filing the return.
Section 234B: Interest for Non-Payment or Short Payment of Advance Tax
Interest under Section 234B is applicable in the following circumstances:
- Failure to Pay Advance Tax: If a taxpayer has not paid any advance tax.
- Underestimation of Advance Tax: If the advance tax paid is less than 90% of the assessed tax.
Section 234C: Interest for Deferment of Advance Tax
Interest under Section 234C is levied if a taxpayer fails to pay the advance tax instalments by the due dates. This interest is calculated on a quarterly basis.
Calculation Steps
Interest under Section 234A:
Interest is charged at 1% per month or part of the month on the tax amount due, from the due date of filing the return till the actual date of filing.
Interest under Section 234B:
- Determine the Assessed Tax: Calculate the tax on total income declared in the return, reduced by TDS/TCS, relief under sections 89, 90, 91, and tax credit under sections 115JAA or 115JD.
- Identify the Shortfall: Determine the amount by which the advance tax paid falls short of the assessed tax.
- Compute the Interest: Interest is charged at 1% per month or part of the month on the shortfall from the due date of the first installment of advance tax up to the date of determination of income under Section 143(1).
Interest under Section 234C:
- Interest is calculated on the shortfall of advance tax paid for each quarter at 1% per month for a period of three months.
Here’s a detailed tabular format showing the interest calculation under each section:
| Scenario | Amount (₹) | Description |
| Tax on Total Income | 100,000 | Tax calculated on the total income declared in the return. |
| Less: TDS/TCS | 20,000 | Tax deducted at source (TDS) or tax collected at source (TCS). |
| Less: Relief under Sections 89, 90, 91 | 5,000 | Relief of tax claimed under relevant sections. |
| Less: Tax Credit under 115JAA/115JD | 2,000 | Tax credit claimed as per provisions of sections 115JAA or 115JD. |
| Assessed Tax | 73,000 | Tax on total income after applicable deductions and credits. |
| Advance Tax Paid | 50,000 | Advance tax actually paid by the taxpayer. |
| Shortfall in Advance Tax | 23,000 | Difference between assessed tax and advance tax paid (73,000 – 50,000). |
| Interest per Month (1%) | 230 | Interest calculated at 1% of the shortfall (1% of 23,000). |
| Months of Delay | 6 | Number of months or part of months from the due date to the date of determination of income. |
| Total Interest Payable under 234B | 1,380 | Total interest payable under Section 234B (230 * 6). |
Manner of Recovery
Interest under Sections 234A, 234B, and 234C is recovered in the following manner:
- Adjusted First: The amount paid by the assessee under Section 140A is first adjusted towards fees, then towards interest, and the balance towards tax.
- Self-assessment Tax: Post regular assessment, any amount paid under Section 140A is deemed to be paid towards the regular assessment.
- Assessee in Default: If the taxpayer fails to pay the whole or any part of the tax, interest, or fee, they are deemed to be an assessee in default, and all provisions of the Act apply accordingly.
Real-Life Case Study
Consider Mr. A KSharma, a freelance consultant who underestimated his advance tax payment for the financial year 2023-24. Here’s a practical illustration:
- Total Income: ₹ 11,42,310
- Tax on Total Income: ₹ 1,61,401
- TDS Deducted: NIL
- Advance Tax Paid: NIL
The assessed tax, after accounting for TDS, is ₹ 1,61,401. Since Mr. A K Sharma paid nothing as advance tax, there is a shortfall of ₹ 1,61,401. Suppose, Mr. A K Sharma filed his return within the due date. Interest Calculation can be done in the following manner:
INSTALLMENT WISE INCOME BIFURCATION
| SN | Particular | Up to 15/6 | Up to 15/9 | Up to 15/12 | Up to 15/3 | Up to 31/3 | Total |
| 1 | NORMAL INCOME | 1142310 | 1142310 | 1142310 | 1142310 | 1142310 | 1142310 |
| 44AD/44ADA/44AE | 0 | 0 | 0 | ||||
| TOTAL NORMAL INCOME | 1142310 | 1142310 | 1142310 | 1142310 | 1142310 | 1142310 | |
| TOTAL SPECIAL INCOME | 0 | 0 | 0 | 0 | 0 | 0 | |
| *TOTAL INCOME | 1142310 | 1142310 | 1142310 | 1142310 | 1142310 | 1142310 |
INCOME WISE ADVANCE TAX BIFURCATION
| SN | Particular | Up To 15/6 | Up to 15/9 | Up to 15/12 | Up to 15/3 | Up to 31/3 | Total |
| 1 | TAX ON NORMAL INCOME | 155193 | 155193 | 155193 | 155193 | 155193 | 155193 |
| TAX + SURC + HECESS | 161401 | 161401 | 161401 | 161401 | 161401 | 161401 | |
| LESS: TDS/ TCS/ Rebate/ Relief/ Credit | 0 | 0 | 0 | 0 | 0 | 0 | |
| BALANCE TAX | 161401 | 161401 | 161401 | 161401 | 161401 | 161401 | |
| ADVANCE TAX PERCENTAGE (%) | 15% | 45% | 75% | 100% | 100% | 100% | |
| ADVANCE TAX LIABILITY | 24210 | 72630 | 121051 | 161401 | 161401 | 161401 |
ADVANCE TAX INSTALLMENTS
| Installment | Due Date | Due Installment | Minimum Advance Tax to be Paid to avoid Interest u/s 234C | Advance Tax Paid | Interest U/s 234C Payable on | Interest U/s 234C | ||||
| % | Amount | % | Amount | Date | Amount | Gross Amount | ||||
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | (9) | (10)=(4-9) | (11) |
| Ist | 15/06/2023 | 15% | 24210 | 12% | 19368 | – | 0 | 0 | 24210 | 726 |
| IInd | 15/09/2023 | 45% | 72630 | 36% | 58104 | – | 0 | 0 | 72630 | 2178 |
| IIIrd | 15/12/2023 | 75% | 121051 | 75% | 121051 | – | 0 | 0 | 121051 | 3630 |
| IVth | 15/03/2024 | 100% | 161401 | 100% | 161401 | – | 0 | 0 | 161401 | 1614 |
Conclusion
Understanding the provisions of Sections 234A, 234B, and 234C is critical for accurate tax planning. Taxpayers must ensure they accurately estimate their income, pay the requisite advance tax, and file their returns on time to avoid interest charges. Timely payment and compliance not only save money but also ensure compliance with tax laws, thereby avoiding penalties and legal complications.
This blog, along with the tabular calculation, provides a comprehensive overview of the interest charges under Sections 234A, 234B, and 234C and actionable insights for taxpayers to avoid interest charges on delayed and non-payment of advance tax and return filing.
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