Interest Penalty for Delay in Filing Income Tax Return under Section 234A

Income tax Department levies penalties in the form of interest on taxpayers if they fail to file return on time or don’t pay Advance Tax on time. These interest penalties are covered under section 234A, 234B and 234C.

The following table shows when each type of interest is imposed on the taxpayer:

Cause of Interest Penalty Covered under Section
Delay in filing Income Tax Return 234A
Delay in payment of Advance Tax 234B
Delay in payment of any instalment of Advance Tax 234C

What is Interest Penalty under Section 234A?

If you don’t file your Income Tax Return on time when you have outstanding tax liability, the I-T department can penalize you by charging interest under section 234A.
Note: This means that interest is not charged if you have failed to file return on time but paid your taxes on time.

How is interest u/s 234A Calculated?

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

1) Interest is charged @ 1% on the outstanding tax amount.
2) Interest will be payable from the 1st day after the due date of filing the return till the date of actual filing of the return.
3) In case if no return is filed then the interest is payable till the date of completion of the best judgement assessment under section 144.
4) The nature of interest is simple interest.
5) Any fraction of month shall be considered as a full month for calculating interest.
6) When calculating interest, the amount of taxes due shall be rounded off to the multiple of 100 and ignore any fraction of 100.

Suppose, we have to calculate interest on Rs. 5,459 for a period of 4 months and 7 days. Keeping in mind the points mentioned above, we will round off the amount (only for calculation) to Rs. 5,400 and interest will be calculated for a period of 5 months since we consider any fraction of a month (7 days in this case) as a full month.

Example of Interest Calculation under Section 234A

Example: Mr. Nilesh is a fashion designer. He has a tax liability of Rs. 80,472. Advance tax paid by him is Rs. 65,000 and he has TDS credit of Rs. 5,000. The due date for filing the return of income in his case is 31st July but he filed his return of income on 5th December. Will he be liable to pay interest under section 234A, if yes then how much?

Solution: Mr. Nilesh has filed his return of income after the due date i.e. after 31st July and hence, he will be liable to pay interest under section 234A.

Interest will be levied at 1% per month or part of the month. The due date of filing the return of income is 31st July and the return of income is filed on 5th December and hence, there is a delay of 4 months and 5 days. Part of the month i.e. 5 days will be considered as full month and hence, interest will be charged for a period of 5 months.

Actual tax liability of Mr. Kumar for the year is Rs. 10,472 (which is paid on 5th December). This is found after deducting Advance Tax paid and TDS credit from his tax liability.

Rs. 80,472 – (Rs. 65,000 + Rs. 5,000) = Rs. 10,472

Interest will be levied at 1% per month on Rs. 10,400 (Rs. 10,472 rounded off for calculation only) for 5 months.

Thus, interest under section 234A will be Rs. 520.

Please note that even if you have paid all the due taxes post 31st March, but before the due date of filing the tax return i.e. 31st July without actually filing the tax return within due date applicable, then you will still end up paying the interest u/s 234A. So ensure that you pay the taxes on time and file your tax return on or before the due date applicable to you.

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