29 Dec 2021
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Each year, taxpayers and assessees are required to furnish their income tax returns with the IT department, as per the provisions of section 139 of the Income Tax Act, 1961. However, what happens if you fail to file your IT returns on time? In that case, interest under section 234A of the Income Tax becomes applicable. In this article, you can find out everything there is to know about the interest levied under this section.

What is section 234A of the Income Tax Act?

Section 234A of the Income Tax Act, 1961, contains the provisions for interest in case of any default in filing tax returns. Generally, individual taxpayers are required to furnish their tax returns by July 31 of each assessment year. The government may occasionally offer extensions to this date. For instance, the due date for filing income tax returns for AY 2021-22 has been extended till December 31, 2o21.

Now, in case you fail to file your return on time, interest under sec 234A of the Income Tax Act will be applicable. The interest depends on your tax liability. And broadly speaking, there may be three possible scenarios.

 

  1. You need to pay taxes to the IT department and you have not paid them on time

  2. You need to receive a refund from the IT department

  3. You have paid your taxes to the IT department and there are no outstanding dues or refunds

In scenario 1, you will definitely be charged interest under section 234A, while in the other two scenarios, the assessing officer may choose to levy the interest if they deem it appropriate.

Interest payable in Section 234A

The interest payable under section 234A of the Income Tax Act, 1961, is calculated on the amount of taxes outstanding. So, in case you fail to file your ITR on time and you have outstanding tax liabilities, you will have to pay interest on the outstanding tax amount as per section 234A of the Income Tax Act.

Section 234A interest is levied at the rate of 1% per month on the pending tax liability. Check out the next section for the formula to calculate the interest under sec 234A of the Income Tax Act.

What is the formula for section 234A of the Income Tax Act?

The interest on delayed filing of your income tax return is calculated according to the following formula under section 234A of the Income Tax Act, 1961.  

Interest under section 234A = (Net tax outstanding) x (Period in months) x (1% per month)

 Here is what these parameters mean.

 

  • Net tax outstanding is the net tax liability remaining after adjustments, as at the end of the financial year

  • The period in months is the number of months of delay from the due date to the actual date of filing returns

  • The rate of section 234A interest is calculated at 1% per month

So, this sums up the section 234A formula. To get a better idea of how the calculation of interest happens, take a look at the examples given in the following section.

How is section 234A interest calculated?

If you are wondering how the interest under section 234A of the Income Tax Act is calculated, here is a closer look at the computation of the dues under this section.

Example 1:

Consider the following parameters and details.  

Particulars

Details

Income tax return filing due date

July 31, 2021

Actual date of filing returns

November 15, 2021

Delay in filing returns

3.5 months rounded up to 4 months

Tax liabilities at the end of FY 2020-21

₹30,000

Given the above data, the interest under section 234A of the Income Tax Act will be calculated as follows.

 

234A interest:

= ₹30,000 x 4 months x 1% per month

= ₹1,200

 

Example 2:

Now, consider the following parameters and details.  

Particulars

Details

Income tax return filing due date

July 31, 2021

Actual date of filing returns

November 15, 2021

Delay in filing returns

3.5 months rounded up to 4 months

Tax liabilities at the end of FY 2020-21

₹1,80,000

Refund claimed at the time of filing returns

₹30,000

Net tax liability

₹1,50,000

 

(₹1,80,000 - ₹30,000)

Given the above data, the interest under section 234A of the Income Tax Act will be calculated as follows.

 

234A interest:

= ₹1,50,000 x 4 months x 1% per month

= ₹6,000

Is 234A applicable to senior citizens?

Section 234A does not grant any income tax exemptions. However, the government may occasionally introduce relaxations for senior citizen taxpayers. So, it is important to keep an eye on such reliefs.

FAQs

  • ✔️At what rate is the interest under section 234A calculated?

     Section 234A interest is calculated at 1% per month.  

  • ✔️I have paid my outstanding taxes and filed my returns with a delay of 6 months and 17 days. What is the period over which the interest under section 234A will be calculated?

    In this case, the interest will be calculated for a period of 7 months, because every part of a month is rounded up to one month.

  • ✔️Can I pay the section 234A interest after filing my returns?

    No. Section 234A interest needs to be paid before you file your IT returns.  

  • ✔️What adjustments are made to calculate the net tax payable?

    The net tax payable is calculated after adjusting advance tax payments, TCS, TDS, tax relief and MAT credit.  

  • ✔️How to check the interest payable under section 234A?

    You can calculate your interest dues as per the formula given above. Alternatively, you can fill in your income details online on the income tax portal, and the applicable will automatically calculate the dues.