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.
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.