Section 234A of the Income Tax Act

The Income Tax Act of India outlines tax deductions and payment provisions. It also has provisions for delays related to filing of returns, including your income tax returns or advance tax returns.

 

The provisions for penalties in delayed income tax returns or advance tax returns are stipulated in Section 234 of the Income Tax Act. Under this section, sub-section 234A outlines the penalty for delayed filing of income tax returns.

 

To know more about Section 234A of the Income Tax Act, 1961, read on.

As mentioned above, Section 234A the Income Tax Act outlines the interest penalty applicable in delayed income tax returns, updated returns, or returns filed in response to a notice issued u/s 142 (1). 

 

If you don’t file your income tax returns on time, you may fall into either of the two categories mentioned below:

• A taxpayer who is not expecting a refund but has outstanding taxes

• A taxpayer who is expecting a refund and has not paid the tax dues

 

It is crucial to remember that although you may not be charged interest if you are expecting a refund, the AO (assessing officer) may charge some interest if they find it necessary.

Section 234 has multiple subsections, among which 234A/B/C are for interest levied on your tax liability. Since all three are for interest penalty, understanding their differences can help you gauge which section applies to you. 

 

Section 234A is when there is a delay in the filing of tax returns. The basic provision is that any taxpayer who has not filed the return before the due date or has filed an updated return or return in response to the notice issued is liable to pay interest until the return is filed.

 

Sections 234B and 234C provide interest penalties regarding advance tax payments. Advance tax is what you pay before the income tax due date. Taxpayers with a tax liability above ₹10,000 must pay an advance tax per the terms stipulated in the Income Tax Act. 

 

Section 234B is when there is a default in the payment of advance tax, and 234C is when the advance tax payment is deferred. The interest rate and penalty amount in both situations depend on the advance tax paid and the outstanding advance tax amount. 

The rate of interest u/s 234A of the Income Tax Act is 1% on the tax liability until you file your returns. The interest levied on your tax liability is in the form of simple interest, i.e., 1% on your tax liability every month. 

 

It is also important to remember that the interest is levied on your net tax liability. This means the tax amount due after deducting the advance tax or other relief from your gross tax liability. 

As mentioned, the interest levied on your tax liability is until you file your return. Here, a crucial point to remember is that part or days of a month are considered as a whole to calculate your interest liability. 

 

This means that if you file your income tax return after a delay of 5 months and 17 days, the period for calculating interest u/s 234A will be 6 months. Remember that regardless of how many days of the month, 5 or 25, it will be considered a whole month.

Under Section 234A, interest calculation is done with the simple interest formula. The formula to calculate the interest liability on your delayed filing is as follows:

 

Interest = Net tax liability X period of delay X 1%

 

Here, 

• Net tax liability is your liability after deducting advance tax and other tax relief from your gross tax liability

• Period of delay is the number of months by which you have filed a delayed return

• 1% is the interest rate applicable per month

 

Basis this formula, here is an illustration of calculation under Sec 234A of the Income Tax Act. Suppose your net tax liability is ₹1,50,000; the due date for filing the income tax return is 31st July, and you filed the return on 15th December. 

 

Here, you’ve delayed your return by 4.5 months, which will get rounded up to five months. With the help of the formula, your interest u/s 234A will be = 1,50,000 X 5 X 1%, which amounts to ₹7,500. 

 

Remember, the period of delay gets rounded up. This means that if you had filed your returns after 4 months and 5 days or even 20 days, the delayed period will be 5 and not 4 months.

 

If you have unpaid tax dues, the best way to avoid a higher penalty is to file the return at the earliest. It is important to note that there are exceptions or relief measures under Section 234A for senior citizens or other taxpayers.