Section 234A Interest for AY 2020-21: Taxpayer’s hopes are normal as usual but results are opposite as expected
In view of the challenges faced by taxpayers in meeting the statutory and regulatory compliance requirements due to the outbreak of Novel Corona Virus (COVID-19), the Government has issued Notification dated 24th June 2020 under the Ordinance for extension in the time limits for making various compliances falling due between 20th March 2020 to 31st December 2020. The said notification has, inter alia; extended the deadline for filing return of income for F.Y. 2019-20 (A.Y. 2020-21) from original due date of 31st July 2020 (for non-corporate taxpayers not liable to tax audit) and 31st October 2020 (taxpayers liable to audit) to 30th November 2020.
Ordinarily, whenever due date for filing return is extended, the interest payable under section 234A for failure to file return on time also gets consequentially deferred to the extended due date. However, the 2nd proviso to the said notification prohibits the normal operation of consequential impact of extension of return filing due date.
It states as follows: –
“Provided further that the extension of the date as referred to in sub-clause (b) of clause (i) of the first proviso shall not apply to Explanation 1 to section 234A of the Income-tax Act, 1961 in cases where the amount of tax on the total income as reduced by the clauses (i) to (vi) of sub-section (1) of the said section exceeds one lakh rupees”.
The press release issued thereafter clarified above that there will be no extension of date for the payment of self-assessment tax for the taxpayers having self-assessment tax liability exceeding Rs. 1 lakh. In this case, the whole of the self-assessment tax shall be payable by the due dates specified in the Income-tax Act, 1961 (IT Act) and delayed payment would attract interest under section 234A of the IT Act”.
In this state of affairs, the honest taxpayers as usual hope and recommend CBDT to review the above provisions of law & refrain from levying interest u/s 234A in AY 2020-21 and to come up with suitable amendment. The said recommendations are based on below rationale:
a) The issuance of notification for extension in timelines/compliances itself is extraordinary due to the outbreak of Novel Corona Virus (COVID-19) and its declaration as pandemic by WHO.
b) The absence of details incapacitates the honest taxpayers in determining the SA Tax as it requires the taxpayer to collate relevant information from various sources. The most common source is interest from banks and resultant TDS. Further, as the time line to file TDS return is extended upto 31st July 2020 and issuance of TDS certificate thereto by 15th August 2020, most banks/tax deductors have not yet filed their TDS returns and taxpayers is in limbo to ascertain SA Tax.
c) Taxpayers greater than 60 years i.e. resident senior citizens not having business or professional incomes are exempted from payment of advance tax. They are required to pay full amount of their liability by way of SA Tax after gathering relevant information and making tax computation. Its serious burden on them to pay SA Tax on or before 31.07.2020 to avoid 234A interest.
d) The extension of return filing dates duly recognised the fact that the taxpayers are encountering difficulties in ensuring tax compliances in normal manner on account of severe restrictions on movement and social distancing norms. Further, several states like (TN,WB, MH) have extended lockdown till 31st July, 2020 because of outburst of COVID 19 pandemic.
e) Also there seems no rationale for dividing tax payers having SA tax liability below or exceeding one lakh. There may arise a situation where middle class/small businessman/senior citizens are having their total tax liability marginally above Rs. 1 lakhs and are normally paying full tax liability through SA tax in the absence of any TDS/Advance Tax vis a vis HNIs, Large corporates, etc.. having total tax liability in crores and resulting SA liability not exceeding Rs. 1 Lakhs due to TDS/Advance Tax/Tax credits.
f) Lastly, the Government is also adequately compensated for delayed payment of taxes through interest u/s. 234B for which there is no relaxation. Further, in past the revenue has conveniently reduce interest rate for refund u/s 244A from its peak of 18% p.a. prevailing in 1990s to 6% p.a. gradually in year 2003 in consonance with the state of economy. The current pandemic and impending global recession too calls for removal/reduction of burden from high rate of 1% u/s 234A.
In view of the above reasoning, the taxpayers hope for suitable amendment to the notification as this poses heavy burden on them. Due to current pandemic, the author expects CBDT to meet the expectations of honest taxpayers and come up with suitable amendment.