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S. Soundara Rajan

Chartered Accountant

Published on: Mar 27, 2026

Interest, Fee and Penalty payable under key sections of the Income-tax Act, 1961

1. Background

The Income-tax Act, 1961 contains statutory provisions to ensure timely compliance with respect to tax deduction, payment, reporting and filing obligations. To enforce discipline and compensate the exchequer for loss of revenue due to delays or defaults, the Act prescribes interest, fee and penalty provisions. While interest is compensatory in nature, fee and penalty are deterrent measures aimed at ensuring compliance.

This article provides a detailed analysis of the key provisions relating to interest, fee and penalty payable by an assessee under Sections 201(1A), 234A, 234B, 234C, 234E, 234F, 234G, 271H and 271K.

2. Interest under Section 201(1A) ā€“ Default in Deduction of tax at source or Payment of TDS

2.1 Applicability

Section 201(1A) applies where a person who is required to deduct tax at source:

  • Fails to deduct tax, or
  • Having deducted tax, fails to pay the same to the credit of the Central Government.

2.2 Rate and Period of Interest

Interest is levied as follows:

  • Failure to deduct tax - 1% per month or part of a month from the date on which tax was deductible to the date on which tax is actually deducted;
  • Failure to pay after tax deduction - 1.5% per month or part of a month from the date of deduction to the date of actual payment.

The interest is mandatory and automatic and is payable irrespective of whether the payer is treated as an assessee in default under section 201(1).

2.3 Nature of Levy

  • Compensatory in nature
  • No discretion with the Assessing Officer
  • Payable even if the deductee has paid tax on such income

3. Interest under Section 234A ā€“ Delay in Filing of Return of Income

3.1 Applicability

Section 234A applies due to:

  • Failure to file the return or
  • Filing of Return after the due date prescribed under section 139(1)

3.2 Rate of Interest

  • Interest at 1% per month or part of a month
  • Computed on the amount of tax payable on total income as reduced by advance tax, TDS/TCS and reliefs

3.3 Period of Levy

From the due date of filing the return till the date of actual filing of return or completion of assessment, as the case may be.

3.4 Nature of Levy

  • Interest under section 234A is mandatory
  • Applicable even if self-assessment tax is paid before filing the return

4. Interest under Section 234B ā€“ Default in Payment of Advance Tax

4.1 Applicability

This section applies where there is a failure to pay advance tax or if Advance tax paid was less than 90% of the assessed tax.

4.2 Rate of Interest

  • Interest at 1% per month or part thereof
  • Levied on the assessed tax minus advance tax paid

4.3 Period

From 1st April of the assessment year till the date of determination of income under section 143(1) or regular assessment.

4.4 Nature of Levy

  • Compensatory
  • Mandatory

5. Interest under Section 234C ā€“ Deferment of Advance Tax Instalments

5.1 Applicability

  • This section applies where there is deferment or short payment of advance tax instalments. Certain relaxations exist for capital gains and specified incomes.

5.2 Rate and Period

Interest is payable at:

  • 1% per month for 3 months for shortfall in first three instalments
  • 1% for shortfall in last instalment

6. Fee under Section 234E ā€“ Delay in Filing TDS/TCS Statements

6.1 Applicability

Section 234E imposes a fee for delay in filing of TDS/TCS statements.

6.2 Quantum of Fee

  • Rs 200 per day of default
  • Subject to a maximum of the amount of TDS/TCS

6.3 Nature of Levy

  • Mandatory
  • Payable before filing delayed statement

7. Fee under Section 234F ā€“ Fee for default in furnishing Return of Income

7.1 Applicability

Section 234F provides for levy of fee where a person required to furnish a return of income under section 139 fails to do so within the prescribed due date.

7.2 Quantum of Fee

Ā·         Rs 1,000 (If the Total Income does not exceed Rs 5 lakh)

Ā·         Rs 5,000 (If the Total Income exceeds Rs 5 lakh)

7.3 Nature of Levy

Ā·         Statutory fee and not penalty

Ā·         Mandatory once conditions are satisfied

7.4 Important Judicial Pronouncement

Ā·         Rajesh Kourani v. Union of India (Gujarat High Court) ā€“ Section 234F is constitutionally valid; levy of fee for late filing of return is neither arbitrary nor unreasonable.

8. Fee under Section 234G ā€“ Default in Furnishing Statement/Certificate of Donation

8.1 Applicability

Section 234G applies where an entity fails to deliver a Statement of Contribution/ Donation in Form No. 10BD to the prescribed Income Tax Authority or furnish a Certificate of Donation to Donors in Form No. 10BE on or before 31st May immediately following the financial year in which contributions/donations are received.

8.2 Amount of Fee

  • Rs 200 per day of default
  • Subject to a maximum of the amount of contribution/donation.

9. Penalty under Section 271H ā€“ Failure to furnish TDS/TCS Statements or Furnishing incorrect information

9.1 Nature of Default

Penalty under Section 271H may be levied for:

  • Failure to file TDS/TCS statement within prescribed time
  • Furnishing incorrect information in the statement

9.2 Quantum of Penalty

  • Minimum: Rs 10,000
  • Maximum: Rs 1,00,000

9.3 Immunity from Penalty

No penalty shall be levied if:

  • Tax deducted/collected was paid
  • Interest and Fee under section 234E were paid
  • Statement was filed within one year from the due date

10. Penalty under Section 271K ā€“ Failure to furnish Statement/ Certificate of Donation

10.1 Applicability

Section 271K applies where an entity fails to deliver a Statement of Contribution/ Donation in Form No. 10BD to the prescribed Income Tax Authority or furnish a Certificate of Donation to Donors in Form No. 10BE within the prescribed timelines.

10.2 Quantum of Penalty

  • Minimum: Rs 10,000
  • Maximum: Rs 1,00,000

10.3 Nature of Penalty

  • Penalty is discretionary

11. Summary

The provisions relating to interest, fee and penalty under the Income-tax Act, 1961 form an integral part of the tax compliance system. While interest provisions primarily compensate the Government for delay, fee and penalty provisions serve as deterrents against non-compliance. A clear understanding of these provisions, read with judicial interpretations, is essential to ensure timely compliance and reduce exposure to litigation.

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