Interest Imposed by the IT Department – Section 234A

Sobiya Ameen

24 May, 2024

Each individual or business is required to pay taxes through filing Income Tax Returns (ITR). Every year, a specific date is finalized as the last date of Filing ITR. The Indian Income Tax Act has mentioned the due date provisions to which the taxpayers have to comply while filing their Income Tax returns every year as per Section 139. Unlike before, if a taxpayer delays or misses upon filing the ITR, it is expected that there will be some legal consequences for not complying with Income Tax regulations, which is to penalize them. Such penalization is imposed in the form of interest according to Section 234 (Section 234A, Section 234B, Section 234C) of the Income Tax Act.

What are the types of interest?

There are 3 different types of interest provisioned under section 234:-

• Delayed filing of Income Tax Returns – Section 234A
• Delayed payment of Advance Tax – Section 234B
• Deferred Payment of Advance Tax – Section 234C

Sneak-peak into section 234A of the Income Tax Act

Let us understand in detail what section 234A of the Income Tax speaks about penalty and under what circumstances. An Income Tax Return shall be filed within the due date specified for the same. However, Failure to pay taxes by filing an ITR in time leads to a penalty in the form of Interest as per Section 234A. In that manner, the rate of missing upon the filing of ITR within the prescribed time limit eventually falls, leading to orderly compliance. If an individual does not miss the filing of ITR within the due date, then he/she must fall in one of the following categories.

• Certain outstanding taxes are there that are left to be paid to the Income Tax department.
• One is eligible for receival of Income Tax refund from the Income tax department.
• One has paid the Income Tax on time without expecting any tax returns or payable taxes.

As per category 2 or 3, If you fall in any of these two, then you are free from worries about late filing of the income tax returns as interest will not be imposed in these two situations under Section 234A. However, there may be some charges imposed if the Assessing Officer finds it necessary. Nevertheless, if there are certain outstanding taxes left on you to be paid, then you may face certain trouble.

According to Section 234A, the charged amount as interest in such scenarios is at the rate of 1% or part of a month, as simple interest is calculated on the outstanding amount. The interest is levied from the respective due date for filing the Income Tax Return of the respective financial year till the date the Income Tax Return or the outstanding amount is actually paid.

Rate of interest

According to section 234A, interest is levied when there is a delay in filing the Income Tax Return. Interest is imposed at the rate of 1% per month, which denotes the nature of interest to be Simple Interest. Also, under Section 234A, even the fraction of a month is subject to interest (Income Tax Return filed 16 days later is levied with interest of 1%).

Period of levy Interest

Interest, as per section 234A of the Income Tax Act, is levied from the period beginning on the date instantly following the fixed date of filing the Income Tax Return and ending on the date of furnishing the Income Tax Return, or in a scenario where no Income Tax Return has been filed, on the date of conclusion of the assessment as per section 144. It is important to keep in mind that while calculating the interest imposed, the fraction of month or days lesser than a month shall be considered as a month. For example, if a taxpayer has filed an Income Tax Return 3 months and 16 days later, then in such a scenario, the month to be considered for calculating Interest imposed under section 234A is four months.

Amount liable to interest under section 234A

Interest, as per section 234A, is imposed on the sum of tax as determined according to section 143(1) of the Income Tax Act. In cases where regular assessment is done, the tax on the gross amount as determined according to such regular assessment is reduced by advance tax, relief claimed under various sections like sections 89/90/90A/91, tax deducted/collected at source, and tax credit claimed under section 115JAA/115JD.

Note: Following are certain exceptions to be taken care of while levying interest on the amount under Section 234A-

1. Tax on gross income determined as per section 143(1) should not involve the additional income tax, if any, payable according to section 140B or section 143 of the Income Tax Act.

2. Tax on gross income determined as per regular assessment should not involve the additional income tax payable according to section 140B of the Income Tax Act.

Calculate your interest

A taxpayer should consider the following point while calculating the interest as per section 234A of the Income Tax Act.

• The charged rate of interest on the outstanding amount (of tax) is 1%.
• Each day passing by from the due date to the date of actual filing of income tax return ¹ is calculated for interest to be levied.
• Interest imposed is charged only in the simple interest form rather than compound Interest.

The due amount of taxes should be rounded off in multiples of 100 and must ignore a fraction of 100 when the interest is being calculated.

Conclusion

Filing of Income Tax Returns within or on the due date is recommended to the taxpayers. Missing the deadlines either by choice or by chance will lead to penalizations in the form of Interest levied on the Taxpayer. The Taxpayer is charged with interest rates mentioned under section 234A for late filing. These rates will lead to a higher amount of interest to be paid if the days delayed are higher as early as the filing, lower the interest. Therefore, make sure you plan your ITR filing in such a manner that it is filed within the due date to put you on a safer side, avoiding interest being levied under Section 234A.

1. https://incometaxindia.gov.in/Pages/tax-services/file-income-tax-return.aspx