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 or companies.
Here,we focus on individuals...
There are three sections of penalties (1)234A (2)234B (3)234C
Let's talk about them step by step,
(1) 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,Mr.Patel has failed to file the tax return on tax payable of Rs 1,00,000, on due date of 31st July 2018, and submits it on 2nd Octomber 2018. The Simple interest due on the tax will be-
Tax Payable: Rs 100000
Delay in Payment of Tax from 31st July 2018: 3 months (August, September, October)
Penalty: 1,00,000 * 3% = Rs 3,000
(2)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 paid.
(b). If the paid amount 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 starting date of assessment year (1st april for A.Y.2018-19) 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 1,00,000 while TDS due was Rs 20,000.
Advance tax already paid was Rs 30,000.
Calculation of Interest:
Tax Liability was Rs 1,00,000, while TDS was Rs 20,000.
Tax Assessment: Rs 80,000 (1.00,000-20,000)
Now IT department assesses, whether partial payment comes under limit of 90%.
Rs 80,000* 90% = Rs 72,000
Therefore amount of Tax paid was less than amount due by Rs 42,000 (72,000-30,000).
The total interest due under section 234B will be: Rs 42,000 * 1%* 4 months (April-July) = Rs 1,680.
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)234C:- Payment of Advance tax not in time or Interest for deferment of advance tax
For A.Y. 2017-18:The table below shows the payment rate of advance tax. These payment rate is applicable for,
(a) Corporate Assessee
(b) Non-Corporate Assessee ( not being the assessee who declares income under section 44AD(1)/44ADA(1)).
| Corporate/Non- corporate Assesee | ||
| Due Date | Amount due | Rate of interest |
| On or before 15 June | 15% 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 |
Here is one relieve: If assesee is paid more than 12% of total tax before 15th june and as well as 36% before 15th september then, the assessee shall not be liable to pay any interest on the amount of the shortfall on those dates.
Example:
Mr.Patel 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
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 = 2,16,000- 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
1,36,000*1%*3 months = Rs 4,080
2,55,000*1%*3 months = Rs 7,650
3,45,000*1%*1 months = Rs 3,450
Total Penalty= Rs 16,440.
It is important to understand the penalties under Sec 234A, 234B and 234C when you are trying to keep away from tax evasion. It’s always better to keep you IT file clean and complete to avoid such interest penalties.
NOTE: The assessee who declares income u/s 44AD(1)/44ADA(1) should 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.
