What is Section 234A of the Income Tax Act?

Section 234A of the Income Tax Act imposes interest on taxpayers for delays in filing income tax returns beyond the due date. The interest rate is 1% per month or part of a month, calculated on the unpaid tax amount from the due date to the actual filing date.

What is the rate of interest charged under Section 234A?

Under section 234A of the Income Tax Act, 1961, the interest rate charged for late filing of income tax returns is 1% per month or part of a month on the total tax due. This interest is calculated from the due date of the return until the actual date of filing.

How is the interest under Section 234A calculated?

Interest under section 234A is calculated at 1% per month or part of a month on the total tax due. It starts accruing from the day after the due date of the return until the actual filing date. The interest is computed every month.

Does Section 234A apply to all taxpayers?

Section 234A applies to all taxpayers who fail to file their income tax returns by the due date. This includes individuals, businesses, and other entities required to submit returns. However, the requirements may change based on the taxpayer's category and the type of income.

Is there a maximum limit to the interest charged under Section 234A?

No, there is no maximum limit to the interest charged under section 234A of the Income Tax Act. The interest is calculated at 1% per month on the total tax due and continues to accrue for each month or part of a month that the return is delayed. This means the longer the delay in filing, the higher the interest amount, with no cap on the total interest payable.

Can the interest charged under Section 234A be waived?

No, the interest charged under section 234A of the Income Tax Act generally cannot be waived, as it is a mandatory requirement for late tax filing. However, in exceptional cases, if there are genuine reasons for the delay, taxpayers may appeal for relief under section 119 of the Income Tax Act.

How does Section 234A interact with Sections 234B and 234C?

All the sections are subsections of section 234. Section 234A deals with interest for the late filing of income tax returns. Sections 234B and 234C deal with levying interest for default in advance tax payments and underpayment of advance tax, respectively.

Are there any exceptions to the applicability of Section 234A?

Yes, exceptions to section 234A's applicability include cases where taxpayers are eligible for a refund and file their returns within the extended deadline allowed by the Income Tax Department. Additionally, if the delay is due to genuine reasons or extraordinary circumstances, taxpayers can appeal for relief under section 119.

What is the impact of Section 234A on tax refunds?

If a taxpayer is eligible for a refund but has delayed filing their return, interest under section 234A of the Income Tax Act will be deducted from the refund amount. The interest calculated will reduce the net refund received, ensuring that the taxpayer pays for the delay in filing.

Does Section 234A apply if I claim a tax refund?

Yes, Section 234A still applies even if you are claiming a tax refund. In such cases, interest is charged on any outstanding tax amount after adjusting for the refund, calculated at 1% for each month of delay.

What is the outstanding tax amount in Section 234A?

The outstanding tax amount refers to the remaining unpaid taxes on your income after considering any advance tax, self-assessment tax, or TDS deductions. Interest under Section 234A is charged on this amount for late filing.

Does Section 234A apply if all taxes are paid but ITR is filed late?

If all taxes are paid on time but the ITR is filed late, Section 234A may not apply. However, timely filing is crucial to avoid any penalties or other complications associated with late returns.

Can interest under Section 234A be waived?

Interest under Section 234A is typically mandatory for late filing. However, in special circumstances, such as natural disasters or technical issues, the government may offer relief from interest and penalties.

What is the applicability of Section 234A?

Section 234A of the Income Tax Act applies when there is a delay in filing income tax returns and the taxpayer has an outstanding tax liability. However, if there is no tax payable or the taxpayer has paid all taxes due before the deadline, Section 234A may not apply.

What is the relief under Section 234A?

To avail relief under Section 89, taxpayers must submit Form 10E online on the Income Tax portal before filing their Income Tax Return. It is important to keep salary slips as proof of arrears received, as they serve as evidence. Form 10E is required to provide details of income under Section 192(2A) to claim the relief.

Section 234A of Income Tax Act, 1961

3 mins read

18-November-2024

Section 234A of the Income Tax Act deals with levying interest as a penalty on taxpayers who fail to file their Income Tax Return (ITR) before the due date specified by the Income Tax Department. The Indian government requires every earning taxpayer to file their Income Tax Return as per the provisions listed in various sections of the Income Tax Act. The government's main aim is to increase its tax base and ensure that earnings in India are accounted for and not used for illicit purposes or tax evasion. For an effective taxation process, the Income Tax Department has set a specific date before which every individual and entity must file their ITR. However, some individuals and entities fail to file their ITR before the due date.

In case you fail to file your ITR before the due date, you may be liable to pay interest charges as a penalty depending on the number of days you have delayed filing your ITR from the due date. The interest charged is levied under section 234A of the Income Tax Act. This blog will help you learn about all the provisions of section 234A of the Income Tax Act and how you can utilise the understanding to avoid tax penalties.

What is Section 234A of Income Tax Act?

Section 234A of the Income Tax defines the provisions to levy interest on taxpayers who fail to file their Income Tax Returns (ITR) before the set due date. The interest payable under section 234A by a late ITR filer is calculated on the number of days the ITR has been delayed from the due date and the amount of tax that remains undeposited. As per the provisions of section 234A of the Income Tax Act, if a taxpayer fails to file their tax return by the due date, they are liable to pay interest at the rate of 1% per month or part of a month on the unpaid tax amount from the due date until the actual date of filing. The main aim of introducing section 234A of the Income Tax Act is to encourage the timely filing of tax returns and ensure that the government can collect taxes promptly.

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Why was Section 234A introduced?

Section 234A was introduced in the Income Tax Act, 1961, to penalize taxpayers who fail to file their income tax returns on time. The purpose of this section is to encourage timely compliance with tax filing deadlines and ensure that the government receives tax dues within the stipulated period. Under Section 234A, taxpayers are charged interest on the amount of unpaid tax for every month or part of a month they delay filing their returns.

Types of Interest Under Section 234

Here are the provisions that come under section 234 to hold taxpayers liable to pay 1% interest if:

The taxpayer fails to file an ITR and pay tax before the due date.

If the taxpayer fails to submit Form 16 to the current employer after changing the previous company.

If the taxpayer fails to comply with any other taxation rules applicable under various sections of the Income Tax Act.

If a taxpayer fails on any of the above-mentioned factors, interest is payable under the following three heads:

Section 234A: Delay in filing and submitting the Income Tax Return

Section 234B: Delay in paying Advance Tax

Section 234C: Deferring the Advance Tax payment

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Interest payable in section 234A

If a taxpayer fails to file ITR on time and delays the tax payment, the provisions of section 234A apply, and 1% interest is payable as a penalty on the undeposited tax amount. The interest is calculated based on the days the ITR has been delayed and then actually filed by the taxpayer. For this purpose, two cases apply:

1. If the taxpayer has not claimed his or her tax refund

In the case that the taxpayer has not claimed the tax refined, the taxpayer is liable to pay interest on the total outstanding amount.

Example: Ms. Ananya was supposed to file her income tax return by 30th September 2019 but delayed and filed her ITR in April 2020 for the financial year 2018-19. Her outstanding tax amount is Rs. 3 lakh. Ms. Ananya delayed her ITR for 7 months (October, November, December, January, February, March, and April), and, assuming she had not claimed her tax refund, she will be liable to pay interest as a penalty.

Interest to be paid will be = 300000 * 1% * 7 = Rs. 21,000

Under section 234A of the Income Tax Act, Ms. Ananya is liable to pay Rs. 21,000 as a penalty in the form of interest levied at 1% for the months delayed.

2. If the taxpayer has claimed his or her tax refund

If the taxpayer has claimed tax refund, even if no ITR has been filed on time, the interest is still charged on the outstanding tax amount. This amount is calculated by subtracting the tax refund from the total outstanding tax amount.

Example: Ms. Priya is eligible and claims a tax refund of Rs. 50,000 while filing her ITR in March 2020. The outstanding tax amount to be paid is Rs. 2 lakh. The penal interest will be charged on the net value obtained after adjusting the tax refund from the outstanding amount.

The net outstanding tax amount = 200000 - 50000 = 150000. Hence, the interest to be paid by her will be = 150000 * 1% * 6 = Rs. 9,000

Under Section 234A of the Income Tax Act, Ms. Priya is liable to pay Rs. 9,000 as a penalty in the form of interest levied at 1% for the 6 months delayed.

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How is interest under Section 234A calculated?

Here are key points included in the process of calculating the interest under section 234A of the Income Tax Act:

The interest rate applicable on the outstanding tax amount is 1%.

The interest is calculated from the day after the due date of filing the ITR until the day on which the ITR is actually filed.

If the taxpayers file no income tax, the payable interest is computed until the date of completion of the assessment year in question as per section 144.

Under section 234A of the Income Tax Act, only simple interest is charged as a penalty.

At the time of calculating the interest, the due tax amount is rounded off in the multiples of 100, and any fraction of 100 is ignored.

Calculation of interest penalty under section 234A by taking an example

Let's say Mr. Raj's total outstanding tax for the financial year 2018-19 is Rs. 80,000 (net of TDS and advance tax). He files his income tax return on 15th May 2020 instead of the due date of 31st July 2019. Therefore, he is 10 months late in filing his return. Since he hasn’t filed his ITR on time, he is liable to pay interest on the outstanding tax amount as per the provisions of section 234A of the Income Tax Act. In this case, the interest charged as a penalty will be calculated as:

Interest calculation: Interest = 80,000 * 1% * 10 = Rs. 8,000

Thus, Mr. Raj will need to pay an additional Rs. 8,000 as interest, along with his tax amount. If Mr. Raj did not file the Income Tax Return at all, the interest would continue to accrue at 1% per month until the assessment year, March 31, 2021.

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Period of levy of interest under Section 234A

Interest under Section 234A is charged from the day immediately following the due date of filing the income tax return. It continues to accrue until the taxpayer files the return. If no return is filed, interest is charged until the completion of the assessment under Section 144.

It’s important to note that while calculating the interest, any part of a month is treated as a full month.

For Example:

Mr. Rohan is an individual taxpayer. The due date for filing his income tax return is 31st July. However, he files his return on 20th October. The tax payable is Rs 10,400, which he pays on 20th October as well.

Since the due date for filing the return is 31st July 2023, and the return is filed on 20th October 2023, Mr. Rohan is liable to pay interest under Section 234A. While calculating the interest, a part of the month is considered a full month. In this case, the delay is 2 months and 20 days, so the interest will be charged for 3 months.

Amount of interest under section 234A of the Income Tax Act

Interest under Section 234A is levied on the amount of tax payable after deducting any advance tax, TDS/TCS, or self-assessment tax already paid by the taxpayer.

For Example:

Mr. Rohan is an individual taxpayer. The due date for filing his income tax return is 31st July. However, he files his return on 5th November. The total tax liability for the financial year is Rs. 20,000. He had paid an advance tax of Rs. 12,000 and has a TDS credit of Rs. 4,000.

Since Mr. Rohan filed his return after the due date of 31st July, he is liable to pay interest under Section 234A. Interest is charged at 1% per month or part of a month.

The delay in filing the return is from 31st July to 5th November, which is 3 months and 5 days. The part of the month (5 days) is treated as a full month, so interest will be charged for 4 months. Interest will be levied at 1% per month on Rs. 4,000 (*) for 4 months. Thus, the interest under Section 234A will be Rs. 160.

The advance tax of Rs. 12,000 and TDS of Rs. 4,000 are deducted from the total tax liability of Rs. 20,000, leaving a net liability of Rs. 4,000. Hence, interest is calculated on Rs. 4,000.

Penalties under section 234

The penalties under section 234 are failing to pay taxes, submitting Form 16 to the current employer, and not complying with taxation rules. The penalties are levied under three sub-sections:

Section 234A: Delay in filing the Income Tax Return

Section 234B: Delay in paying Advance Tax

Section 234C: Deferring the Advance Tax payment

Terminologies related to Section 234A

Income Tax Return (ITR)
An Income Tax Return is a form in which a taxpayer reports their total income, tax liabilities, and other relevant financial details to the tax authorities. It includes information on all sources of income and the taxes to be paid.
Outstanding tax amount
This refers to the total tax liability that remains unpaid by the taxpayer. It represents the amount the assessee still owes to the tax authorities.
Penal interest
Penal interest is the interest charged to a taxpayer for the late filing of their Income Tax Return. This interest is imposed as a penalty for delays in compliance.
Due date
The due date is the deadline for filing the Income Tax Return, as specified under Section 139(1) of the Income Tax Act. It is the final date by which individuals must submit their returns for the financial year.

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Key points of Section 234A of Income Tax Act

Here are some of the key points regarding section 234A of the Income Tax Act:

Delayed filing: If taxpayers delay filing their ITR and the due date has passed, they are liable to pay interest as a penalty under section 234A of the Income Tax Act.

Interest calculation: The interest rate under section 234A is 1% per month or part of a month on the unpaid tax amount.

Calculation period: Interest is calculated from the due date of filing the return until the actual filing date

Tax amount: The interest is computed on the amount of tax payable after accounting for advance tax, TDS, and other applicable rebates or deductions.

Conclusion

The Indian government requires taxpayers to file their ITRs before the due date. However, if you fail to claim a refund or file your ITR on time, you are liable to pay 1% interest on the outstanding tax amount every month or part of a month until the ITR is filed. Hence, it is important that you file your ITR on time to avoid interest penalties under section 234A of the Income Tax Act.

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