Interest Under Section 234A, 234B & 234C of Income Tax Act, 1961

To pay your taxes and submit your returns on time, you must carefully prepare your strategy. You must face severe fines if you disregard the tax laws and miss the deadlines for filing and paying your taxes. The penalties are computed as interest on the amount of your unpaid taxes in accordance with Section 234 of the Income Tax Act,1961.

Learn how to compute the penalty interest if you have missed deadlines for paying or filing your taxes. You must first be aware of the many categories of Interest Under Sections 234 A, 234B & 234C.

What are the different types of interest imposed under Sections 234 A, 234B & 234C?

• Section 234A – It deals with the late submission of income tax returns (ITR)
• Section 234B – for late payments of advance taxes or for payments that are incomplete.
• Section 234C – Deals with deferred advance tax payments.

Provisions of Section 234 A

The tax authorities set a deadline each year, often July 31. You will be subject to a penalty under Section 234A if you file after this date and still owe taxes. On the amount of the unpaid tax, you will be required to pay interest at a rate of 1% per month, or a portion of a month. From the time your return is due to be filed until the time it is actually filed, interest will be assessed.

The sum on which interest will be charged

When submitting an income tax return is delayed, interest must be paid on the total amount of tax, as calculated under section 143(1), and, in the instance of continual monitoring, on the overall amount of the tax, as estimated under systematic evaluation, as cut by the amount of—

• If any advance tax was paid,
• As well as, any tax that was withheld or collected at source,
• In case any tax relief was granted

Provisions of Section 234 B

The penalty for late payment of advance tax is defined in this clause.

How does the advance tax work?

Paying advance tax entails setting up quarterly installments on due dates established by the income tax agency. You must pay advance tax if your tax liability for a financial year is Rs. 10,000 or more.

The types of taxpayers who must pay advance tax are business owners, salaried workers, and independent contractors. Taxpayers who choose to have their income from enterprises with an assumed 8% turnover are excused from paying advance tax.

Duration of Interest Levy

Interest under section 234B is assessed beginning with the first day of the evaluation year (often on April 1) and continuing until the date on which section 143(1) income is determined or until a related to the attributes conducted. However, interest is charged on the differential amount from the start of the assessment year until the date of assessment or re-computation in the event that the income is increased as a result of the assessment.

Interest that is governed by Section 234B

• If the amount of tax due after deducting TDS exceeds Rs. 10,000 but no advance tax was paid, interest is due in accordance with this section.
• Less than 90% of your “assessed tax” was covered by the advance tax that you paid.
• You must pay 1% interest on the assessed tax amount in each of these scenarios, rounded up to the nearest hundred, less any advance tax that has already been paid.

Provisions under Section 234 C

By offering a number of tax breaks and facilities, the tax authorities strive to lessen the burden of income tax. Conveniently paying advance tax throughout the course of the fiscal year in four installments is one such amenity. However, if you continue to be in default, Section 234C requires you to pay penalty interest on the deferred payment.

Penalties under Section 234 C

If you haven’t made your advance tax installments on time, you must pay a penalty as described in section 234C of the Income Tax Act. In the following situations, interest under section 234C is assessed when advance tax installments are postponed:

• Interest will be assessed against taxpayers other than those who have chosen the presumptive taxation option under Sections 44AD or 44ADA if: 
•  If the advance tax paid on or before the 15th day of June is less than 12% of the tax payable on the returned income,
•  As well as, If the advance tax paid on or before the 15th day of September is less than 36% of the tax payable on the returned income,
•  However, If the advance tax paid on or before the 15th day of December is less than 75% of the tax payable on the returned income, and
•  If the advance tax paid on or before the 15th day of March is less than 100% of the     total tax due on returned income
• If the advance tax payment made on or before the 15th of March is less than 100% of the tax owed on the returned income for taxpayers who have chosen the presumptive taxation system under section 44AD or section 44ADA, interest will be assessed.

Interest Rates Under Section 234C

Interest is assessed under section 234C at 1% per month or a fraction of a month for failure to pay advance tax installments on time. If an individual’s advance tax installments are not paid in whole or are paid late, the taxpayer is responsible for paying a simple interest charge of 1% per month or a fraction thereof.

Period of Interest Levies Interest under section 234C is imposed for a period of one month in the event that the last installment is not paid in full and for a period of three months in the event that the first, second, and third installments are not paid in full.

How is interest calculated under Section 234C?

Prior to the due date, you must first determine how much-advanced tax you must pay each year:

However, the sum of interest due on Advance Tax pursuant to Section 234C of the Income Tax Act is less than the amount evaluated:

Summing up

You can avoid penalties and interest under sections 234A, 234B, and 234C of the Income Tax Act by properly preparing your income tax payment. To reduce your income tax liability, you might purchase tax-saving tools like life insurance products in India.