CA Atin Harbhajanka

INTRODUCTION:

In every Act, different interest is been levied for various kind of delay and defaults. In this article, we will discuss pivotal calculation of interest u/s 234A for the delay in furnishing or not- furnishing return of income u/s 139(1) of the Income Tax Act, 1961.

1.1 Key Notes to be kept in mind while proceeding ahead with the calculation of interest u/s 234A:

1. Who is assessee i.e. to say a company, individual(see age also) etc?

2. Round off the total income in multiples of Rs. 10/-

3. Remember the break up of total income i.e. its composition whether slab rate or the flat rate of income.

4. Before proceeding ahead with the tax calculation also remember provision of the section 111A and section 112.

5. Whether assessee is earning agricultural income, if yes then rebate of agricultural income while determining the tax calculation.

INTEREST sign on laptop screen of the yellow letters on a background of sky, sun and clouds

6. The other important points to remember are:

a) Rebate u/s 87A(if applicable),

b) Surcharge(if any)

c) Marginal Relief(if any)

7. The due date of filing the return of income, whether there is any extension of due date during the year.

8. The date of payment of Self-Assessment Tax whether before the due date of filing the return of income or after.

1.2 Computation of Interest Under The Income-Tax Rules

Before understanding the provisions of section 234A, it is important to understand the provisions of Rule 119A of Income-tax Rules which gives the manner of computation of interest.

As per Rule 119A, while calculating the interest payable by the taxpayer or the interest payable by the Central Government to the taxpayer under any provision of the Act, the following rule shall be followed:

a) In the case of interest calculation on annual basis fraction month shall be ignored and rounded off to whole month or months.

Where interest is to be calculated on annual basis, the period for which such interest is to be calculated shall be rounded off to a whole month or months. For this purpose, any fraction of a month shall be ignored and the period so rounded off shall be deemed to be the period in respect of which the interest is to be calculated;

F or eg: Mr. A is liable to pay interest @ 12% p.a. on Rs. 1,00,000/- He is delayed by 10 months and 11 days.In this case, interest will be calculated for 10 months, since fraction months are ignored. Hence interest will be 100000*12%*10=Rs. 10000/-

b) In the case of interest calculation on monthly basis fraction month shall be rounded off to whole month or months.

Where interest is to be calculated for every month or part of a month comprised in a period, any fraction of a month shall be deemed to be a full month and the interest shall be so calculated;

For eg: Mr A is liable to pay interest @ 1% p.m. on Rs. 1,00,000/- He is delayed by 10 months and 11 days.In this case, interest will be calculated for 11 months, since fraction months are rounded off to the whole month. Hence interest will be 100000*12%*11=Rs. 11000/-

c) The amount of tax, penalty or other sum, on which interest calculated to be rounded off to multiple of one hundred rupees.

The amount of tax, penalty or other sum in respect of which such interest is to be calculated shall be rounded off to the nearest multiple of one hundred rupees. For this purpose, any fraction of one hundred rupees shall be ignored and the amount so rounded off shall be deemed to be the amount in respect of which the interest is to be calculated.

1.3 When Such Interest Is Levy

If there is delay in furnishing return of income for any assessment year under

> sub-section (1) of section 139(Original return) or

> sub-section (4) of section 139(Belated return), or

> in response to notice under sub-section (1) of section 142,

a) is furnished after the due date, or

b) is not furnished,

then the assessee is liable to pay interest under section 234A.

1.4 Return Submitted After The Due Date And Entire Tax Is Paid By Way of Self-Assessment Tax Paid Before Due Date

In such a case interest will not be payable as the entire tax is deposited before the due date of filing return of income as decided in the case CIT V. Dr. Prannoy Roy[2009] 179 Taxman 53 (SC).

Illustration 1:

Mr A is a teacher by profession. His tax liability for the financial year 2020-21 amount to Rs. 6,200/-. Due date of filing the return of income u/s 139(1) is 31/07/2020. Return of income filed on 02.02.2021 and entire self-assessment tax paid on 30.07.2020. Calculate interest u/s 234A?

Ans:

In the given case although the return is filed after the due date, but the entire tax is paid by way of self-assessment tax before the due date of filing return hence no interest u/s 234A will be levied.

1.5 Assessment Made For The First Time U/S 147

Belated return cannot be submitted after the expiry of one year from the end of relevant assessment year. If an assessment is made for the first time u/s 147, the assessee cannot be made liable to pay interest u/s 234A for the period for the period during which it was not to possible to file return u/s 139(4) till the issuance of notice u/s 148.

1.6 Rate of Interest

The assessee shall be liable to pay simple interest @ 1% for every month or part of a month. [Part of the month means if a payment is delayed by a single day then interest will be charged for the whole month].

1.6.1 Interest calculation will commence from which date

a) If return furnished after due date:

Interest will commence on the date immediately following due date* till the date of furnishing the return.

*Due date means the date specified u/s 139(1).

b) If no return has been furnished:

Interest will commence on the date immediately following due date till the date of completion of assessment.

1.6.2 Interest will be calculated on which amount

Step 1: Tax on total income determined u/s 143(1) or an assessment u/s 143(3) or section 147 or 153A (if the assessment is made for the first time u/s 147 or 153A).

Step 2:

From the tax determined as above the following should be deducted:-

> Advance tax paid(if any)

> TDS/TCS

> Relief u/s 90/90A/91

> Tax credit(if any) u/s 115JAA/115JD

Table depicting amount on which interest u/s 234A is to be calculated

Particulars Amount(Rs.)
Total Income ******
Agricultural Income ******
Tax on total income including agricultural income ******
Less: Tax on agricultural income including exemption limit ******
Net tax payable before credit ******
Less: Tax credit to be set off u/s 115JAA/115JD ******
Net tax payable after credit ******
Add: Surcharge(if any) ******
Tax after surcharge ******
Add: Cess on above ******
Tax after cess ******
Less: TDS

Less: TCS

******

******

Tax after TDS/TCS ******
Less: Advance Tax ******
Tax after advance tax ******
Less: Self Assessment tax(SAT)

Less: Regular Assessment tax(RAT)

******
Tax after SAT/RAT ******
Add: Interest u/s 234A ******

Illustration 2:

Mr. A is a teacher by profession. Tax liability for the FY 2019-20 amount to Rs. 6,200/-. Due date of filing the return of income u/s 139(1) is 31/07/2020. On 01/09/2020 she paid Rs. 6200/- and filed his return of income on the same day. Will interest u/s 234A is liable?

Ans: Due date of filing return of income: 31/07/2020

Actual date of filing return of income: 01/09/2020

Delay in filing: 1month 1 day

Rounded off: 2 months (part of month rounded off to full month

Amount paid: Rs. 6200/-

Interest payable = 6200*2*1%=Rs. 124/-

Illustration 3:

Mr. A is a teacher by profession. Tax liability for the FY 2019-20 amounts to Rs. 6,200/-. Due date of filing the return of income u/s 139(1) is 31/07/2020. He does not file his return of income nor he paid any self-assessment tax, but he paid by way of advance tax during FY 2019-20 Rs. 1000/- and TDS is Rs. 200/-. The assessment is completed on 14.02.2021. Calculate interest u/s 234A?

Ans: Interest u/s 234A will be calculated since the return is not filed. The interest will be calculated after the due date of filing till the date of completion of assessment or one year from the end of relevant assessment year whichever is earlier. Since in the given case assessment is completed first hence interest will be calculated from 01.08.2020 to 14.02.2021 i.e. 7 months (part of the month will be taken as the full month).Interest will be calculated on tax payable (-) advance tax (-) TDS i.e. Rs. 6200(-) 1000(-) 200=Rs.5000/-*.01*7=Rs.350/-

Illustration 4:

Mr A is a teacher by profession. His tax liability for the financial year 2019-20 amount to Rs. 6,200/-. Due date of filing the return of income u/s 139(1) is 31/07/2020. Return of income filed on 02.02.2021 and entire self-assessment tax paid on 12.12.2020. Calculate interest u/s 234A?

Ans: In the given case, although the return of income is filed after due date i.e on 02.02.21 but since the entire tax liability is paid by Self Assessment tax on 12.12.20, therefore interest u/s 234A will be calculated after due date of filing return u/s 139(1) till the date of Self Assessment Tax i.e. 01.08.2020 to 12.12.20.(6200*.01**5=310)

1.7 Provisions of Section 234A (3)

Where the return of income for any assessment year,

> required by a notice under section 148 or 153A issued after the determination of income under sub- section (1) of section 143 or

> after the completion of an assessment under sub- section (3) of section 143 or section 144 or section 147,

a) is furnished after the expiry of the time allowed under such notice, or

b) is not furnished,

the assessee shall be liable to pay simple interest at the rate of one per cent, for every month or part of a month comprised in the period commencing on the day immediately following the expiry of the time allowed as aforesaid, and,-

a) where the return is furnished after the expiry of the time aforesaid, ending on the date of furnishing the return; or

b) where no return has been furnished, ending on the date of completion of the re- assessment or re- computation under section 147 or reassessment u/s 153A,

on the amount by which the tax on the total income determined on the basis of such re- assessment or re- computation exceeds the tax on the total income determined under sub- section (1) of section 143 or on the basis of the earlier assessment aforesaid.

Illustration 5:

Mr A filed the return of income on 16.09.17 i.e. within due date specified u/s 139(1) for the AY 2017-18 declaring total income of Rs. 130000/- hence no tax liability. Later on, a search was initiated at the residential and business premises of the assessee dated 01.11.19, in which the assessee offered additional income of Rs. 22,00,000/-. A notice was issued u/s 153A on 20.09.20 and served on 29.09.20 directing to file the return of income within 30 days from the receipt of notice, the return is filed on 29.12.20. Calculate interest u/s 234A?

Ans:

Particulars ITR u/s 139(1) Return filed after 153A notice
Date of filing return 16.09.10 29.12.14
Returned Income 1,30,000 1,30,000
Additional Income as per statement of facts 22,00,000
Assessed Income 1,30,000 23,30,000
Tax as per slab rate 0 6,03,000
Add: Surcharge Nil Nil
Tax including surcharge 0 6,03,000
Add: Cess @ 3% 0 24,120
Tax including Cess 0 6,27,120
Less: TDS 0 0
Less: Advance Tax 0 0
Tax Payable before SAT 0 6,27,120
Less: SAT 0 0
Tax after SAT 0 6,27,120
Add: Interest u/s 234A 0 18,814

Interest u/s 234A will be calculated after the expiry of 30 days from the date of service of notice u/s 153A till the date of filing of return u/s 153A i.e. from 29.10.20 to 29.12.20 for a period of three-month fraction rounded off to one.Since difference between additional tax payable is 6,27,120(-) 0=621090/- on this amount 234A is calculated i.e. 6,27,120*.01*3=18,814/-

1.8 Conclusion

It is to be noted that for pivotal calculation of interest u/s 234A the above-mentioned points needs to be followed for the avoidance of interest, thereby reducing the tax burden on taxpayers which in turn leads to the effective administration for the department.

Disclaimer: The contents of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

(Republished with Amendments by Team Taxguru)

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4 Comments

  1. Kan Singh Dewal says:

    In illustration 5, if assessee would have been paid any SAT before due date or after due date( in both conditions) in response to notice u/s 153A, then, what will be the calculation?

  2. D Veera Mohan says:

    Greatly explained. However in illustration 5 if original return filed is explained. If original return not filed n filed ITR after lapse of one month notice (i.e. after two months) U/s.153A, calculation of interest in this case may be explained with illustration. Or in above illustration if original return not filed what would be the interest. Thank you.

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