In income tax, we have certain cases where the assessee is required to pay interest compulsorily either for default in furnishing return of income or payment of tax or failure to pay or deduct TDS.
Today, through this write up, we are going to discuss how to calculate interest in case of default in furnishing return of income or is not furnished. This provision is specified in Section 234A of Income Tax Act 1961.
As per section 234A, an assessee will be liable to pay interest in the following cases;
- Return of income furnished after the due date of filing, or
- Return of income not furnished
Due date of filing for an individual is use to 31st July of the assessment year for which return of income is filed. For assessment year 2015-2016 due date of filing has been extended from 31st July 2015 to 31st August 2015. To know more on due dates applicable to different other assessees please read our article on what is due date in Income tax act.
In the first case where return has been furnished after the due date of filing, simple interest will be charged at the rate of 1% per month or part of the month starting from the date immediately following the due date to the date of furnishing return of income or date of completion of assessment.
As per Rule 119A (B), any fraction of a month while calculating interest is be deemed to be a full month and the interest shall be calculated. This means, part of the month will be taken as full month.
As per rules 119A(C), while calculating interest under section 234A, income tax shall be rounded off to the nearest multiple of 100 rupees and for this purpose any fraction of 100 rupees will be ignored.
This means, if income tax liability is Rs 1394 then it will be considered as 1300 and 94 will be ignored for calculation of interest under section 234A. Similarly, if income tax liability is Rs 1324 then it will also be considered as 1300 rupees.
Interest under section 234A is required to be calculated on tax payable determined under different sections as applicable minus TDS/TCS minus advance tax paid minus tax credit allowed under section 115JAA minus relief of tax allowed under section 90 and 90A.
Example showing calculation of interest under section 234A
Return of income for the financial year 2014-2015 (i.e. assessment year 2015-2016) of an individual was due on 3oth July 2015 but has been filed on 5-2-2016 declaring as taxable income of Rs 200000 (after basic exemption and deduction). He has paid advance tax of Rs 4500 and Rs 10000 has been deducted as TDS.
| 1 | Income As per IT return | 200000 | |
| 2 | Tax @10% | 20000 | |
| 3 | Surcharge @ 3% | 600 | |
| 4 | Total Tax (2+3) | 20600 | |
| Less: | |||
| 5 | TDS | 10000 | |
| 6 | Advance Tax | 4500 | 14500 |
| 7 | Tax Payable on Self Assessment (4-5-6) | 6100 | |
| 8 | Interest u/s 234A(6100*1%*6 months) | 366 |
As due date for assessment year 2015-2016 has been extended to 31st august 2015 we have considered actual due date as 31st august. From 31st august 2015 to 05/02/2016 is 6 months.
In CIT v Prannoy Roy, assessee paid taxes before the due date of filing return of income but could not file the return of income for reason beyond his control. He filed return of income belatedly. It was held that charge of interest under section 234A is not valid as in such cases there is no loss to the revenue. Interest under section 234A will be payable where tax has not been deposited prior to the due date of filing of return of income.
Where assessing officer issue notice under section 148 or 153A, interest under section 234A at the rate of 1% per month or part of the moth will be payable for the period commencing on the date immediately following the expiry of time limit given in the notice and would end on the date of furnishing return of income or date of completion of reassessment.
Where due to an order under section 154 or 155 or 250 or 254 or 260A or 262 or 263 or 264 or 245D (4) the amount of tax has been increased r reduced, the interest shall also be increased or reduced accordingly.
Also Read: Due dates and interest to be paid for default in payment of advance tax
