Interest for delay in filing the return of income

In this blog, we will see the provision of section 234A which deals with the Interest for delay in filing the return of income.

Interest for delay in filing the return of income

Under the Income-tax Act, different types of interests are levied for various kinds of delays/defaults.

This is a 3-part series where you will learn about these following things:

The manner of computation of interest under the Income-tax Act

Before knowing on the provisions of section 234A, 234B and 234C it is important to understand the provisions of Rule 119A which gives the manner of computation of interest under the Income-tax Act.

As per Rule 119A, while calculating the interest payable by the taxpayer or the interest payable by the Government to the taxpayer under any provision of the Act, the following rule is as follows :

  • where interest is to be calculated on annual basis, the period for which such interest is to be calculated shall be rounded off to a whole month or months. For this purpose, any fraction of a month shall be ignored and the period so rounded off shall be deemed to be the period in respect of which the interest is to be calculated;
  • where the interest is to be calculated for every month or part of a month comprised in a period, any fraction of a month shall be deemed to be a full month and the interest shall be so calculated;
  • the amount of tax, penalty or other sums in respect of which such interest is to be calculated shall be rounded off to the nearest multiple of Rs.100. For this purpose, any fraction of Rs.100 shall be ignored and the amount so rounded off shall be deemed to be the amount in respect of which the interest is to be calculated.

For e.g.,

If we want to compute interest under section 234A on Rs. 8,489 for 3 months and 10 days, then as per Rule 119A discussed above, while computing the amount liable to interest, any fraction of Rs. 100 is to be ignored and, hence, we will ignore Rs. 89 and the balance amount will come to Rs. 8,400. Interest will be computed on Rs. 8,400. Further, the period of 10 days will be considered as a full month and interest will be computed for 4 months.

Interest for delay in filing the return of income [Section 234A]

Under section 234A, interest is levied for delay in filing the return of income. In other words, if the taxpayer files the return of income after the due date specified in this regard, interest under section 234A will be levied.

Rate of interest

Interest is levied at 1% per month. In other words, the taxpayer is liable to pay simple interest at 1% per month Interest for delay in filing the return of income

Period of levy of interest under section 234A

Interest under section 234A is levied from the date immediately following the due date of filing the return of income to the date of furnishing the return of income, or in the case where no return has been furnished, to the date of completion of the assessment under section 144.

It should be noted that while computing the period of levy of interest, the fraction of a month is considered as a full month.

Amount liable to interest under section 234A

Interest under section 234A is levied on the amount of tax reduced by advance tax, tax deducted/collected at source. Also, relief claimed under various sections like sections 90/90A/91 and tax credit claimed under section 115JAA/115JD.

Illustration

Mr. Harsha is running a pharma store. The due date for filing the return of income in his case is 31st July. He filed his return of income on 3rd December. The tax liability of Mr. Harsha for the year is Rs. 28,400. Advance tax paid by him is Rs. 15,000 and he has TDS credit of Rs. 5,000. The pending amount was paid on the day of return filing. Will he be liable to pay interest under section 234A, if yes then how much?

Mr. Kumar has filed his return of income after the due date i.e., after 31st July and hence, he will be liable to pay interest under section 234A. Interest will be levied at 1% per month.

The due date of filing the return of income is 31st July and the return of income is filed on 3rd December and hence, there is a delay of 4 months and 3 days. Part of the month i.e. 3 days will be considered as a full month and interest will be charged for a period of 5 months. Interest will be levied at 1% per month on Rs. 8,400 (*) for 5 months. Thus, interest under section 234A will come to Rs. 420.

(*) Advance tax of Rs. 15,000 and TDS of Rs. 5,000 are to be reduced from the tax liability of Rs. 28,400. Hence, net liability after deducting advance tax and TDS will come to Rs. 8,400. Thus, interest will be levied on Rs. 8,400.

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