Section 234A

It is mandatory to file ITR within the time limit prescribed for each year for you. If you don’t file a return within this prescribed time or not file at all will attract this Interest under section 234A.

 You could be in one of these 3 distinct positions for not filing the returns before the due dates.

  1. Taxes are outstanding to be paid to the Income Tax department
  2. Eligible for a tax refund from the Income Tax department
  3. All the taxes have been perfectly paid with no refund expected or taxes payable.

If you fall into point “2” or “3”, as interest may not be applicable in these two scenarios so do not worry too much about late filing of your tax returns. But If you have unpaid taxes that are outstanding and you have not filed your returns by the due date, you are in for trouble.

Rate of Interest

Under section 234A, an interest of 1% per month (simple interest) will be charged on the tax amount outstanding and it will be calculated from the due date applicable to you for the filing of return of the applicable year till the date that you actually file your return.

How is interest u/s 234A calculated?

The following points must be kept in mind while calculating interest:

  • Interest will be charged @ 1% on the outstanding tax amount under section 234A.
  • Interest payable on the 1st day after the due date of filing the return till the date of actual filing of the return.It is payable till the date of completion if no return is filed.
  • The nature of the interest is simple interest.
  • Any fraction of the month shall be considered as a full month for calculating interest.
  • The amount of taxes due shall be rounded off to the multiple of 100 and ignore any fraction of 100 when you are calculating the interest.

Examples

Example 1 – Let’s say that Arjun total tax outstanding is Rs 1, 00,000 (net of advance tax paid & TDS if any) and Arjun file the return on the 15th December instead of 31st July of the assessment year, when you were actually supposed to file your return. You are now 5 months late on your tax payments. (The 15 day period in December is treated as a month).

Interest = 100,000 x 1% x 5 = Rs. 5,000

This Rs. 5,000 is over and above the tax amount that Arjun will be paying in any case.

If Arjun does not file the return at all, he will have to pay 1% interest until the end of the assessment year i.e. 31st March. In the example above, Arjun’s liability would be 8% of Rs. 1, 00,000 which is Rs 8,000.

Example 2-  Mr.Mittal has a total tax outstanding amounting to Rs 2, 00,000 (including the net of the advance tax paid and TDS, if any). He files his tax return on December 15 instead of July 31 of the assessment year. Since he missed the actual date to file a return, he is late by 5 months in paying tax.

The penalty is calculated as: Interest = 200,000 x 1% x 5 = Rs. 10,000

Mr. Mittal will be paying Rs 10,000 extra, above the tax amount, if he fails to file his tax return, he will be required to pay 1% simple interest until March 31, which is the end of the assessment year. As seen in the illustration above, Mr. Mittal liability would be 8% of Rs. 2, 00,000 which is Rs 16,000.

For any help on ITR Filing feel free to consult the tax experts at LegalRaasta. You can file ITR yourself via our ITR software or get CA’s help on filing income tax return. You can also use the option of Business Return, Bulk Return or Revised Return Filing.