Being late always comes with its cons like losing on some good opportunities or financial losses. Similarly, when tax filing is delayed, there are lost opportunities in the form of not being able to carry forward losses and financial losses in the form of interest and fees. The income tax department levies interest under section 234A on the amount of tax dues outstanding when the return is filed late.
What is Section 234A?
Income Tax Return for a particular Financial Year needs to be filed within the prescribed time limit i.e., 31st July of the next financial year when a tax audit is not applicable. In cases where tax audit is applicable the due date shall be 31st October of the next financial year. Hence, if the taxpayer fails to file the return within that prescribed time, they will be liable to pay interest u/s 234A. In that case, they can be in one of the following three situations :
- There are outstanding taxes to pay to the IT department.
- There is a tax refund from the IT department.
- The taxes have been paid on time with no refund expected or taxes payable.
If a taxpayer falls under the 2nd or 3rd situation, there is no need to worry about attracting interest for not filing an ITR on time.
Apart from 234A, the following interest/fee is also covered under section 234:
- Delay in payment of Advance Tax – Section 234B
- Deferred payment of Advance Tax – Section 234C
- Fee for late filing of ITR – Section 234F
When will interest u/s 234A be levied?
Interest u/s 234A is levied from the first day after the due date till the actual date of paying the taxes. For example, the due date to file ITR for AY 2023-24 is 31st July 2023 for non-tax audit cases. If a taxpayer misses the due date, then interest u/s 234A will be levied on the outstanding tax dues. The interest u/s 234A will be imposed from 1st August 2023 till the date taxes are paid.
Rate of Interest applicable u/s 234A
Interest is applicable at 1% per month or part of a month. The nature of interest is simple interest.
Calculation of Interest u/s 234A
Let’s understand the calculation through an example.
Karan is an engineer. The due date for filing ITR is 31st July 2023. However, he filed it on 8th November 2023. His tax liability as per tax rates comes to INR 10,550.
In this case, as Karan filed his ITR after the due date, 1% of his total tax liability will be added for each month of delay, as interest under Section 234A.
So total interest amount = INR 10,550 x 1% per month x 4 months (August, September, October, November) = INR 422.
So now Karan will have to pay 10,550 (tax) + 422 (interest) = INR 10,972.
FAQs
Section 234A of the Income Tax Act is levied on taxpayers if they delay in filing their Income Tax Return (ITR). Section 234B of the Income Tax Act is levied upon those taxpayers who default in payment of Advance Tax.
If your gross income is more than the basic exemption limit then you have to file your ITR. In case you miss the deadline and you have outstanding taxes, interest u/s 234A, 234B and 234C will be levied. Additionally, a fee u/s 234F will also be levied.
A taxpayer can avoid interest by filing the ITR before the due date or paying the outstanding dues before the due date.
Hey @Shweta_Saini
Advance tax is a ‘Pay as you earn’ tax, so it is required to be paid during the financial year in four different instalments in case your Taxable Liability is more than INR 10,000 for the financial year which stands true for you.
The due dates for advance tax installments are:
If you are eligible to pay advanced tax but have not paid advance tax, the penalty will be applicable u/s 234B and 234C.
Let us know if you have any further questions!
Hi Team, I had assumed that I will be able to pay advanced tax before March because I thought I could go for presumptive tax filing. But now it looks like I cannot opt for a presumptive taxation scheme. So does it mean that I did not pay the advanced quarterly tax that I was supposed to pay?
If yes, what is the penalty in every case or are there some exceptions to avoid this interest penalty?
Thanks in advance!
Hey @riya_gupta
You will be charged an interest penalty under section 234C for the delay/non-payment of advance tax during the year @1% per month on the shortfall amount. Additionally, under Section 234B a penalty interest is imposed on the taxpayers in case the advance tax payment is less than 90% of assessed tax liability during the year.
You can avoid interest u/s 234B by paying at least 90% of your assessed tax liability by March 15, 2021.
Hope this helps!
Hey @TeamQuicko
I have LTCG of more than 7 lakhs from the equity for this year. Is there a way to reduce my tax liability? Also, do I have to pay the tax in advance? If I fail to do so, what will be the penalty/interest percentage I have to pay during my tax filing in 2020?
Hey @ViraajAhuja47, you can set off against non-speculative business loss like F&O for the current year. Long-term capital losses for the previous as well as the current year. Yes, you are required to pay advance tax in case your tax liability is more than INR 10,000 for the FY. The penalties for non-payment of advance tax are:
Non-payment of Advance Tax u/s 234B 3: Interest at 1% in case the taxpayer fails to pay 90% of the tax liability in the same FY
Delay in Payment of Advance Tax u/s 234C 1: if there is a delay in tax payment than interest @ 1% is applicable.
Hello @S_P
Tax paid on or before 31/03/2021 will be considered as advance tax for FY 2020-21. So a trader can determine the profits between 15th March to 31st March and pay the tax on 31st March, there will be no interest levied.
Hope this helps!
Hi @TEst_Netflix,
Tax audit is applicable when:
You can use this tool to determine if tax audit is applicable to you:
It is always a good practice to file your ITR and report all your financial transactions to avoid notice from the Income Tax Department. Especially after the SEBI and CBDT’s data partnership. If your total income is below the basic exemption limit, you won’t have any tax liability.
Do I have to pay Advance Tax if the TDS for the year is sufficient to cover tax liabliltiy?
Does Dividend on equity shares attract separate Advance Tax or is it just another source of income?
Hi @vivek25,
You are liable to pay advance tax if your total outstanding tax liability for the financial year after TDS is above INR 10,000.
To calculate your advance tax liability you need to add your estimated income for the financial year from all sources including - Salary, House Property, Capital Gains, Business & Profession and other sources.
Next, subtract all eligible deductions, expenses, and Tax Credit available to you.
Now, if your outstanding tax liability is above INR 10,000, you need to pay advance tax to avoid penalty u/s 234B and 234C.
Hope this answers your query
You can also use the advance tax calculator to know your advance tax liability under the old and new tax regime
Hi
When I pay the advance tax through the ZERODHA-QUICKO platform, does it get saved/stored? For example I have paid for Q1. so when I have to pay for Q2, will this be automatically calculated?
Thanks