Interest Calculation of Under Section 234A, 234B And 234C of Income Tax Act, Along With Provision And Example

Applicability:- Every Assessee is required to pay advance tax whose income tax liability is ₹10000 or more.

Exception:- Resident senior citizen has not income under head of Profit & Gain from business and profession, is not required to pay advance tax. This exception is not applicable on non-resident assesse.

Advance Tax shall be calculated by estimating of current year income and arriving at after deducting Tax Deducted at Source, Tax Collected at Source and Minimum Alternative Tax. Tax paid before 31st march of previous year shall be treated as advance tax.

Due dates of payment of advance tax for all assesse

Due Date    Amount of Advance tax

Upto 15th June of Previous Year 15% of advance tax liability

Upto 15th September of Previous Year 45% of advance tax liability

Upto 15th December of Previous Year 75% of advance tax liability

Upto 15th March of Previous Year  100% of advance tax liability

Note:- If assessee opts to Section 44AD or 44ADA for the calculation of income as per presumptive basis, advance tax shall be paid with single installment i.e. due date of advance tax in such case is 15th March of previous year.

Section 234A: Interest for delay in return filing

Interest for delay return filing shall be calculated on Return of Income (ROI) after adjustment of TCS/TDS/Advance Tax/MAT/Self Assessments tax (If paid up to due date of return filing) & any relief under section 89 of Income tax Act, 1961.Interest shall be calculated @1% for per month or part of month from the next day of due date of return filing till the date of actual return filing date.

Section 234B: Interest for Non/short payment of advance tax

Section 234B is not applicable If assessee has paid 90% or more advance tax.

Interest on advance tax under section 234B shall be computed on short payment of advance tax as per Return of Income @ 1% per month or part of month from 1st April of Assessment Year (A.Y.) to till actual date of payment.

Note:- If any change in income due to processing of return under section 143(1) or assessment, the tax as per u/s 143(1)/assessed tax shall be taken  instead of tax as per return of income (ROI) for the  calculation of interest under section 234A & 234B.

Section 234C: Interest for deferment of advance tax installment

Formula:  Deferred amount × 1% per month or part of month × 3 month for all installment except Last installment. (for last installment – interest is applicable for 1 month only)

Note:-  On interest shall be levied if assesse has paid advance tax up to 12% for 1st installment and 36% for 2nd installment.    

Simple Example:-  

Assessee- Comapany

Due date of return 30th September 2020

Tax ₹1050000

TDS ₹37600

Due date payment of advance tax   Advance tax Paid

15 june  ₹40000

15 September ₹65000

15 December   ₹100000

15 March  ₹62000

Return filing date- 15 October 2020.

Solution:-

Interest u/s 234A- Return has been filed on 15 October 2020 i.e. 15 after due date for filing of return. So interest u/s 234A shall be levied @1% on income tax payable reduced by TDS/Advance Tax.

Income Tax (1050000*30%*104%) 327600

Less: –  TDS  37600

– Advance tax (40000+65000+100000+62000) 267000                                                          

23000

Interest (23000*1%)   230

Interest u/s 234B:  (327600-37600)90%    261000

Advance tax (40000+65000+100000+62000) 267000

Here Advance tax has been paid more than 90% of assessed tax, so interest u/s 234B is not applicable.

Interest u/s 234C- Income tax due/ Advance tax payable (327600-37600) ₹ 290000

Due Date Advance tax paid cumulatively (A) Min. tax payment for avoiding interest (B) Min. tax payment if condition (B) is not met (C) Short Fall (B-A)

(Negative figure ignore)

Interest
15 June 40000 12%*290000 = 34800 15%*290000 = 43500 Nil 0
15 Sept 105000 36%* 290000=104400 45%* 290000 =130500 Nil 0
15 Dec 205000 75%* 290000 =217500 75%* 290000 =217500 12500 12500* 1%*3 =375
15 March 267000 100%* 290000 =290000 100%* 290000 =290000 23000 23000* 1%*1 =230

Total Interest payable u/s 234C (375+230) =  ₹605

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Qualification: Student - CA/CS/CMA
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Location: Delhi, New Delhi, IN
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