Interest Penalty for late filing of income tax return – Section 234A

Not filing an income tax return on or before the due date can lead to various penalties. Interest under section 234A will be applied when the return of income has been filed after the due date of filing or time allowed under section 142(1) or it has not furnished at all.

If section 234A is applied, then the assessee has to pay an interest amount of 1% per month or part of the month on the tax amount outstanding.

Interest for the purpose of section 234A means simple interest.

Interest at the rate of 1% has to be calculated on the net tax payable ( i.e.after deducting TDS and TCS etc.) at the time of filing.

Interest under section 234A will not be applicable to cases where the return of income has been filed late but tax has been paid before the due date of filing. It’s not applicable as in these cases, the tax liability on the due date of filing is NIL.

Where return of income has not been filed, interest under section 234A will get calculated from the due date of filing income tax return, up to the date of completion of assessment.

If assessee has filed his income tax return after the due date, then interest will be calculated from the due date of filing till the date of furnishing IT return.

Illustration

Mr. X’s tax liability for the financial year 2016-17 is Rs. 8,000. He has filed his return on 18th November 2017.

In this case, Mr. X has filed his return after the due date of filing. Assuming the due date as 31st July 2017, Mr. X is now 4 months late in filing his IT return.

In our case, Mr. X was late by 3 months 18 days. As any fraction of a month shall be considered as a full month for calculating interest, we have taken the delay in filing as 4 months.

Interest to be paid by Mr X under section 234A is Rs. 320 (i.e. 8,000 x 1% x 4).

In case of higher tax outstanding, in addition to section 234A, you may be required to pay interest under section 234B and 234C of IT act.

Due to recent changes, you will be liable to pay penalty (referred to as late filing fee) for late filing. As per the new changes to income tax provisions, a penalty of Rs. 5,000 will be paid if the return is filed after the due date but before 31st December of that year.

The penalty will be increased to Rs. 10,000 if the return has been filed after 31st December of the assessment year.

However, if your income is not more than Rs. 5,00,000, then the maximum penalty of filing your return on or before 31st December is Rs. 1000. After 31st December, the penalty will be increased to Rs. 5000.

Remember, calculation of interest as discussed above will be the same for all financial year including for the financial year 2019-20 and 2020-21.

Also Read: Late filing fee for Income tax return in India

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.