If you fail to pay taxes on time, you will need to pay interest on the delay. Here’s a brief explanation of interest under Sections 234A, 234B, and 234C of the Income Tax Act, 1961.
Rule 119A of Income Tax
Rule 119A explains how to calculate interest:
- Annual Calculation: Round off to a whole month; ignore fractions of a month.
- Monthly Calculation: Treat any fraction of a month as a full month.
- Rounding Off Interest: Round off the interest amount to the nearest hundred rupees; ignore fractions of one hundred.
Interest for Delay in Return Filing under Section 234A
If you file your income tax return after the due date, you must pay interest at 1% per month (or part of a month) from the day after the due date until the return is filed.
Example: If your tax liability is Rs. 9,500, and you file your return a month late, you'll pay Rs. 95 as interest (1% of Rs. 9,500).
Interest for Default in Payment of Advance Tax under Section 234B
If you don’t pay advance tax or pay less than 90% of your total tax liability, you must pay interest at 1% per month from April 1st until the date of determination of income.
Example: If your tax liability is Rs. 55,500 and you paid Rs. 50,000 as advance tax (more than 90%), no interest is levied.
Interest for Default in Payment of Installments of Advance Tax under Section 234C
Interest is charged if you delay payment of advance tax installments.
Interest Calculation:
- By 15th June: If paid less than 15% of tax due.
- By 15th September: If paid less than 45% of tax due.
- By 15th December: If paid less than 75% of tax due.
- By 15th March: If paid less than 100% of tax due.
Interest is 1% per month for 3 months for the first three cases, and for 1 month in the fourth case.
Example:
- Tax liability: Rs. 30,000
- Advance tax paid: Rs. 25,000
Installments Paid:
- Rs. 5,000 by 15th June
- Rs. 10,000 by 15th September
- Rs. 25,000 by 15th December
Interest Calculation:
- Under Section 234A: 1% for five months on Rs. 5,000 = Rs. 250
- Under Section 234B: 1% for nine months on Rs. 5,000 = Rs. 450
- Under Section 234C: 1% for three months on Rs. 3,500 (shortfall in second installment) = Rs. 105
Summary Table
| Section | Condition | Interest Rate | Period |
|---|---|---|---|
| 234A | Late return filing | 1% per month | From due date till filing date |
| 234B | Default in advance tax | 1% per month | From April 1st till date of determination |
| 234C | Delay in installments | 1% per month | 3 months (1st to 3rd installments), 1 month (4th installment) |
Note: Timely payment of taxes can help avoid these interest charges.