ZenIT || Interest under Sections 234A, 234B, and 234C

Interest under Sections 234A, 234B, and 234C Explained!

Failed to pay taxes on time? You can pay taxes now, but interest on the delay in payment of taxes is required to be paid. There are three sections governing interest on the delay of payment of taxes.

In this blog, we will discuss interest under Sections 234A, 234B, and 234C of the Income Tax Act, of 1961. The brief of the three sections is as below:

Section 234A:	Delay in filing the return of income
Section 234B:	Non-payment or short payment of advance tax
Section 234C:	Non-payment or short payment of individual instalments or instalments of advance tax (i.e., deferment of advance tax)

But before we delve into the provisions of Sections 234A/B/C, it's important to understand the provisions of Rule 119A relating to the computation of interest under the Act. The interest is to be computed in the following manner:

• Where interest is to be calculated on an annual/yearly basis, the period shall be rounded off to a whole month, and any part/fraction of a month shall be ignored.
• Where the interest is to be calculated for every month or part of a month (not in terms of years), any fraction of a month shall be deemed to be a full month.
• The amount of interest calculated shall be rounded off in multiples of a hundred, and for this purpose, any fraction of one hundred rupees shall be ignored.

To understand it even more properly, let's take an example. Suppose you have to compute interest on Rs. 10,655/- for 3 months and 7 days, as per rules, Rs. 55 shall be ignored, and the 7 days shall be taken as 1 month. Therefore, your interest would be calculated at Rs. 10,600 for 4 months.

(A) Interest under Section 234A for the delay in filing the return of income:

Interest under Section 234A is payable if you file your income tax return after the due date specified.

Interest will be levied at 1% per month or part of a month from the period starting on the date immediately following the due date of filing the return and ending on the date of actually filing the return.

For example, if your tax liability for the financial year 2023-24 amounts to Rs. 19,500, and the due date of filing the return of income is 31.07.2024, but you file your return on 30.08.2024, then you will be liable to pay interest of Rs. 195. This is calculated at the rate of 1% on Rs. 19,500 for 1 month, as per Section 234A.

(B) Interest under Section 234B for default in payment of advance tax:

Interest as per Section 234B is payable if you fail to pay advance tax or if you pay advance tax which is less than 90% of your total tax liability.

Interest will be levied at 1% per month or part of a month, from 1st April till the date of the actual determination of income. The amount on which interest shall be charged will be the amount of unpaid/short-paid advance tax (i.e. Total assessed tax advance tax paid – TDS etc).

For instance, if your tax liability for the financial year 2023-24 totals Rs. 1,00,000, and you have already paid an advance tax of Rs. 95,000 (which exceeds 90% of the total tax), then no interest under section 234B shall be applicable to you.

(C) Interest under Section 234C for default in payment of instalments of advance tax:

Interest under section 234C for default in payment of instalment (s) of advance tax is calculated based on specific conditions:

(1) If the advance tax paid is less than 12% of Tax due on returned income on or before 15th June, the interest is levied on the difference between 15% of Tax due on returned income and the advance tax paid till 15th June.

(2) If the advance tax paid is less than 36% of Tax due on returned income on or before 15th September, the interest is levied on the difference between 45% of Tax due on returned income and the advance tax paid till 15th September.

(3) If the advance tax paid is less than 75% of Tax due on returned income on or before 15th December, the interest is levied on the difference between 75% of Tax due on returned income and the advance tax paid till 15th December.

(4) If the advance tax paid is less than 100% of Tax due on returned income on or before 15th March, the interest is levied on the difference between 100% of Tax due on returned income and the advance tax paid till 15th March.

Interest is charged at 1% per month or part of a month for a period of 3 months in cases (1), (2), and (3) above, and for 1 month in case (4) above.

For instance, if you file your return on 10th December 2024 against the due date of 31st July 2024, and your tax liability is Rs. 40,000, out of which Rs. 35,000 has been paid as advance tax by you.

The advance tax paid is paid as follows:

Rs 6,000	before 15th June
Rs 8,000	before 15th September
Rs 21,000	before 15 th December

Interest shall be calculated as under:

(1) Under section 234A: Interest of Rs. 250 would be levied @1% For 5 months on Rs. 5,000 (Rs. 40,000 - Rs. 35,000).

(2) Under section 234B: Interest of Rs. 450 would be charged @1% for 9 months (from 1st April to 10th December) on Rs. 5,000.

It is important to note here that if the advance tax paid was more than Rs. 36,000/- i.e. more than 90% of the total tax, no interest would have been payable.

(3) Under section 234C: Assuming the balance income tax of Rs. 5,000 was paid by 15th March, the interest of Rs. 120 would be payable on the second instalment as the amount of Rs. 8,000 is less than 36%, i.e., Rs. 14,400.

We hope after reading you are more aware of Sections 234 A/B/C. We request you to file your ITR within the due date provided so that no interest is demanded from you. But in case, if you are liable to pay interest under the above-mentioned sections, we are confident that you'll calculate them correctly.

Hope This Helps.

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