All about interest under section 234A
As a taxpayer, it is the responsibility of an assessee to make timely payment of his tax dues and to file his / her tax return within the time prescribed by the government. In case, the taxpayer furnishes the return of income / Income Tax Return (ITR) after the due date of filing a tax return, will be liable to pay interest on the taxes due.
Sec 234 A: “Interest for defaults in furnishing return of income”
As per the Income Tax Act, 1961, Any person is required to file the return of income for any assessment year
- under sub-section (1) or sub-section (4) of section 139,or
- in response to a notice under sub-section (1) of section 142,
and he files the same after the due date, or he does not file the return,
Then, the taxpayer shall be liable to pay simple interest at the rate of 1% per month or part of a month.
The interest is applicable from the date immediately following the due date to furnish the return.
In short, interest under section 234A is levied for delay in filing the tax returns. Please note that this interest is over and above the penalty amount to be paid u/s 234F.
When is Interest u/s 234A applicable?
A taxpayer filing a delayed tax return might have 3 positions:
- The taxpayer has already paid the requisite taxes due to the IT department before the due date OR
- The taxpayer has a refund of tax due from the IT department OR
- The taxpayer has taxes outstanding to be paid to the department at the time of filing of return.
Interest u/s 234A is applicable only in the case of point 3 above. Hence you need not worry about the levy of interest u/s 234A in case you have already paid the requisite tax or you have no tax liability/refund due.
How to compute the interest u/s 234A?
The levy of interest under this section will be computed by the simple interest method. The interest of 1% per month or part of the month on the outstanding tax amount. Hence, the interest will be chargeable on total tax liability as reduced by the taxes already paid, TDS, etc.
In order to compute this interest, the period (in months) from the day after the due date till the date of furnishing of the return should be considered.
In case, the taxpayer has not filed the return and the Assessing officer orders the assessment, for the period (in months) from the day after the due date till the date of completion of the assessment under section 144 should be considered. In the case of assessments,
Mr. A fails to file his tax return due on say 31st July and has a tax due of Rs 50,000/- On 31st December he files his tax return.
In this case,
Interest charge u/s 234A = 50000 x 1% x 5 months = Rs. 2,500/-
Hence, Mr. A will have to pay Rs. 50,000 + Rs 2,500 + any other interests or penalties for delay in payment of tax.
What happens when the due date has been extended? – A debate!
Many times the due date to furnish the income tax return gets extended beyond the due date.
In this scenario, the question arises whether the interest u/s 234A will be applicable from the original due date or the extended due date?
The definition of ‘due date’ under section 234A is mentioned as ” the date specified in sub-section (1) of section 139 as applicable in the case of the assessee.”
The CBDT has powers to extend the due date under section 119 to relax the provisions related to section 139 as well as sec 234A. Accordingly, CBDT extends the due date to furnish the income tax return by the assessees.
Sometimes, CBDT extends the due date and specifically mentions that interest u/s 234A will be applicable from the original due date and not the extended due date.
Hence, in our opinion, unless specifically mentioned in the order, the interest u/s 234A will be calculated after the original due date and not the extended due date.
For the assessment year 2021-22
The due date for income tax returns has been extended but interest u/s 234A will be leviable from the original due date u/s 139(1) for the taxpayers having tax liability above Rs 1 lakh.