How to calculate interest on Section 234A, 234B & 234C

Discipline in Income tax return is very important. Failing which, you will be liable to file additional penalties on the amount due. However, there are plenty of issues that can result in failure of tax deposits. These issues can be related to individuals, companies and other assessee. For companies, it can occur due to failure to deposit advances.

In case of individuals, if he does not deposit the tax at  right time or does not provide for FORM 16 to current employer after change of his company, he will be liable for interest on tax payable. This is also known as default in furnishing the income. These penalties are slapped under Section 234A, Section 234B and Section 234C.

  • 1. Section 234A: Interest for Defaults in furnishing return of income
    • The IT Act has made provisions for a penalty of 1% every month or part of the month on the amount of tax payable. This interest is calculated from the due date to the date of actually filing the income tax return.
    • For example, ABC has failed to file the tax return on tax payable of Rs 2,00,000, on stipulated date of 31st July 2018, and submits it on 2nd December 2018. The Simple interest due on the tax will be-
    • Tax Payable: Rs.2,00,000/-
    • Delay in Payment of Tax from 31st July,18: 5 Months (August, September, October, November and December)
    • Penalty: 2,00,000 * 5 = 10,000
  • 2. Section 234B: Interest for Defaults in Payment of Advance Tax
    • This Penalty Provision activates in Two cases:
      • a. If the assessee was liable to pay advance tax, but failed to deposit that.
      • b. If the amount deposited was less than 90% of the tax to be deposited.
    • In both the above cases, assessee will be levied a Simple Interest @ 1% per month or part of the month. Please remember, if you deposited the advance tax which was more than 90% of the total tax, then no interest will be charged from you. This interest is chargeable from 1st April of the Assessment Year. It can also be charged from the initiation date of assessment year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax.
    • In calculation of 90% we will consider the amount of tax payable after TDS.
    • Consider this example:
    • The tax liability of the Individual Assessee was Rs 2,40,000 while TDS due was Rs 40,000.
    • Advance tax already paid was Rs 1,20,000.
    • Calculation of Interest:
      • Tax Liability was Rs 2,40,000, while TDS was Rs 40,000.
      • Tax Assessment: Rs 2,00,000 (2,40,000-40,000)
      • Now IT department assesses, whether partial payment comes under limit of 90%.
      • Rs 2,00,000* 90% = Rs 1,80,000
      • Therefore amount of Tax paid was less than amount due by Rs 60,000 (1,80,000-1,20,000).
      • The total interest due under section 234B will be: Rs 60,000 * 1%* 4 months (April-July) = Rs 2,400.
      • The interest is taken till July because which is the due date of payment for individual assesese and assumed as month of return filing.
  • 3. Section 234C: Payment of Advance tax not in time or Interest for deferment of advance tax
    • A. –> w.e.f A.y.2017-18: The table below shows the payment rate. These payment rate is applicable to:-
      • a. Corporate Assessee
      • b. Non-Corporate Assessee (Not being the assessee who declares income under section 44AD(1)/44ADA(1).
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Corporate / Non-Corporate Assessee

Due Date Amount due Rate of interest
On or before 15 June15% of tax due on the returned income or the amount of such advance tax paid Simple Interest @ 1% per month or part of the month for 3 months
On or before 15 September 45% of tax due on the returned income or the amount of such advance tax paid Simple Interest @ 1% per month or part of the month for 3 months
On or before 15 December 75% of tax due on the returned income or the amount of such advance tax paid Simple Interest @ 1% per month or part of the month for 3 months
On or before 15 March 100% of tax due on the returned income or the amount of such advance tax paid Simple Interest @ 1% per month or part of the month for 1 month

However ,if the advance tax paid by the assessee on the current income, on or before the 15th day of June or the 15th day of September is not less than twelve per cent or, thirty-six per cent respectively  of the tax due on the returned income, then, the assessee shall not be liable to pay any interest on the amount of the shortfall on those dates

Mr. Ratan is an assessee whose income tax computed was Rs 6,00,000
He paid the following advance tax:
1. 10th June: Rs 30,000
2. 15th September: Rs 50,000
3. 15th December: Rs 25,000
4. 15th March : Rs 30,000

Total = Rs 1,35,000
TDS= Rs 1,20,000
Tax Assessment: Rs 6,00,000- 1,20,000= Rs 4,80,000

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Penalty on the Advance Tax is calculated on the basis of difference between actual amount paid and due.
15% of Rs 4,80,000 = 72,000 differential = 72,000- 30,000 = Rs 42,000
45% of 4,80,000 = 2,16,000 differential = 2,88,000- 80,000 = Rs 1,36,000
75% of 4,80,000=3,60,000 differential =3,60,000-1,05,000= Rs 2,55,000
100% of 4,80,000 = 4,80,000, differential = 4,80,000-1,35,000 = Rs 3,45,000

Interest Charges:
Rs 42,000*1%*3 months = Rs 1,260
Rs 1,36,000*1%*3 months = Rs 4,080
Rs 2,55,000*1%*3 months = Rs 7,650
Rs 3,45,000*1%*1 months = Rs 3,450
Total Penalty= Rs 16,440.

B. –> w.e.f A.y.2017-18: The assessee who declares income u/s 44AD(1)/44ADA(1) should pay pay the entire tax (100%) as advance tax on or before 15th March .If there is any shortfall, interest shall be levied simple interest@1% per month or part of the month on the short amount

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Author: admin

BharaTax is an online Blog portal for reporting all the latest articles, judgments, Circulars, orders, and notifications relating to Taxation Laws in India.

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