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Interest Imposed Under Section 234A, 234B and 234C Explained

Interest Imposed Under Section 234A, 234B and 234C Explained

Interest imposed

Paying income tax and filing returns is the duty of every citizen of India. It is a good practice to maintain and also helps you recover TDS payments. Your taxes are a major source of revenue for the government which it uses for important public programs and services. There are tax reduction and saving provisions that come with a term plan or a life insurance plan which can reduce your eventual payable amount.

With proper planning, one can maintain timely tax payments. However, if not planned on time, you might end up delaying your payments. The interest rates for various types of defaults are listed under Section 234A, Section 234B, and Section 234C of the IT (Income Tax) Act. Let us have a look at all of them in detail.

Section 234A

Every Assessment Year, the last date for returns is generally before the 31st of July. For 2020, it has been extended to the 30th of November. If you fail to pay your taxes by this date, you will attract interest under Section 234A.

The interest charged is 1% upon the tax amount that is outstanding, and is calculated starting from the 1st date of delay until the late return filing date. In this calculation, even a part of a month is considered a month.

Calculation of interest under Section 234A

Let’s assume Mr.X has an outstanding amount of Rs. 2,00,000, which includes his net advance tax plus TDS. Now, instead of November 30, 2020, he files his returns on May 15, 2021. He is hence, late by six months. His interest will thus be

2,00,000 X 1% X 5 = Rs.10,000

Mr.X will now pay an additional Rs. 10,000. If he continues to not pay his dues even further, an additional interest of 1% will be added every month.

Section 234B

If your total tax liability in a year is greater than Rs.10,000, you have to pay an Advance Tax. Advance tax is the tax that you pay in the year in which your income is earned.

Section 234B is invoked in case you pay your taxes but not the whole amount. A delay in advance tax payment also attracts Section 234B. In case you’ve made advance tax payment of less than 90% of total assessed tax, you are liable to pay interest under this Section.

The interest payable under this Section is also 1%.

Calculation of interest u/s 234B

Let’s take the example of Mr.X again, and assume that he has a payable tax amount of Rs.1,00,000. The TDS calculated is Rs.82,650. This makes the Assessed Tax (1,00,000- 82,650) = Rs.17,350. He should’ve paid a minimum of Rs.15,615 (90% of Rs.17,350) by the 30th of June, 2020. However, let’s assume he had paid only Rs.6,000 on the due date, and the rest on November 15, 2020.

Now, he will pay the following interest.

Rs.15,615 X 1% X 5 months (delay) = Rs.781 (rounded off)

Section 234C

There are multiple deadlines for payment of Advance Taxes. If there is delay in any of these instalment payments, an interest is levied under this Section. Here are the instances in which you will attract an interest u/s 234C.

  • If the Advance Tax you pay before or on the 15th of June < 12% of Assessed Tax
  • If the Advance Tax you pay before or on the 15th of September < 36% of Assessed Tax
  • If the Advance Tax you pay before or on the 15th of December < 75% of Assessed Tax
  • If the Advance Tax you pay before or on the 15th of March < Total amount of Assessed Tax

Calculation of interest under Section 234C

Late payment interest under this Section, too, is applied at the rate of 1% on the outstanding amount of tax, starting from the individual dates listed above, up to the payment date.

This is how interest is calculated for taxpayers who haven’t taken the presumptive payments option.

Interest calculation under Section 234C

Conclusion

It is important to know details about these Sections, but what is more important is keeping track of due dates and making payments on time. For reducing your tax liability, there are always life insurance and other instruments that also add value to your savings.

The iSelect+ Term Plan by Canara HSBC Oriental Bank of Commerce is one life insurance plan that is tailor made with features such as whole Life Cover, return of Premium, multiple payout options, increase coverage options, and tax benefits. You can also buy cover for your spouse under the same plan. Plus, you will have the flexibility to choose from various coverage, premium payment, and benefit payout options. The best part is that all of this is just a few clicks away!

Speak to an insurance specialist now!

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