Calculating Income Tax Late Payment Interest
Calculating Income Tax Late Payment Interest
If an assessee fails to pay income tax (self-assessment tax or advance tax) on or before the due date, the assessee should pay interest and penalty. Delay in filing the income tax return, non-payment or short payment of advance tax and non-payment or short payment of individual instalments of advance tax payment of Income Tax as per the tax calendar would result in a levy of late payment interest by the Income Tax Department as per Section 234A, 234B and 234C of the Income-Tax Act.
Interest under Section 234A
Delay in filing the return of income would result in a late payment interest to be levied as per Section 234A. Interest amount of 1% per month (simple interest) would be applied on the tax amount outstanding.
Example: A taxpayer has unpaid taxes that are outstanding. He has not filed his IT Returns by the due date (31st Jul). The income tax payable was ₹ 23,300 and he filed his IT returns on 8th Nov. What will be the late payment interest levied on him under Section 234A for the delayed filing of IT Return?
Actual Filed Date: 08-Nov
Delay in Filing: 3 Months and 8 days delay (Delay is calculated from the due date of 31st Jul and is rounded as 4 months)
Tax Payable: ₹ 23,300
Late Payment Interest: 1 % * ₹ 23,300 * 4 months = ₹ 932
Interest under Section 234B
Delay or shortfall in paying advance tax as per the income tax calendar would result in late payment interest to be levied as per Section 234B. All assesses are required to pay Advance Tax (at least 90 %) where the tax payable is Rs 10,000 or more. Late Payment Interest is applicable if the tax liability is more than Rs 10,000 and the taxpayer has not paid any advance tax or if the taxpayer has paid advance tax, but advance tax paid is less than 90% of ‘assessed tax’.
Example (Not paying Advance Tax): A taxpayer has ₹ 15,400 as tax payable, but he has not paid any advance tax until 31st March. If the entire tax was paid by him 0n 3rd Oct, when he files the return of income, how much interest is he liable to pay as per Section 234B?
Actual date of paying tax: 03-Oct
Delay in Filing: 6 Months and 3 days delay (Delay is calculated from 31st Mar which is the end of FY and is rounded as 7 months)
Tax Payable: ₹ 15,400
Late Payment Interest: 1 % * ₹ 15,400 * 7 months = ₹ 1,078
Example (Shortfall in paying any Advance Tax): A taxpayer has ₹ 38,500 as Tax Payable. He has paid ₹ 20,000 towards advance tax until 31st March. If the remaining ₹ 18,500 was paid by him 0n 25th Aug, when he files the return of income, how much interest is he liable to pay as per Section 234B?
Actual date of paying tax: 25-Aug
Delay in Filing: 4 Months and 25 days delay (Delay is calculated from 31st Mar which is the end of FY and is rounded as 5 months)
Tax Payable: ₹ 38,500
Advance Tax Paid: ₹ 20,000 (which is only 51.9 % of tax payable)
Penalty to be applied for: ₹ 38,500 – ₹ 20,000 (Advance Tax that is paid already) = ₹ 18, 500
Late Payment Interest: 1 % * ₹ 18,500 * 5 months = ₹ 925
Interest under Section 234C
Default in payment of instalment(s) of advance tax as per the timelines provided by the Income Tax Department would result in late payment interest as per Section 234C.
The following table provides the details on the cut off date and the advance tax payable:
|Due Date||All Tax Payers except those who have opted for presumptive income u/s 44AD||Taxpayers opting for presumptive income u/s 44AD|
|15th June||Upto 15 % of Advance Tax Payable||Nil|
|15th September||Upto 45 % of Advance Tax Payable||Nil|
|15th December||Upto 75 % of Advance Tax Payable||Nil|
|15th March||Upto 100 % of Advance Tax Payable||Up to 100% of Advance Tax payable|
Example: A Tax Payer who has not opted for presumptive income u/s 44AD has ₹ 50,000 as Tax Payable. He has paid ₹ 2,500 on 13th June, ₹ 10,000 on 12th September, ₹5000 on 11th December and ₹ 7,500 on 10th Mar towards Advance Tax. How much interest is he liable to pay as per Section 234C because of default payment of instalments?
Tax Payable: ₹ 50,000
Detailed Calculation is as below :
|Cut-Off Date||Expected %||Expected Amount (Cumulative)||Advance Tax Paid||Advance Tax Paid (Cumulative)||Defaulted Amount (Expected Amount – Advance Tax Paid)||Interest (1%)|
|15th Jun||15 %||15 % of 50,000
|₹ 2,500||₹ 2,500||₹ 7,500 – ₹ 2,500
= ₹ 5,000
|1% * ₹5,000 *3
= ₹ 150
|15th September||45 %||45 % of 50,000
|₹ 10,000||₹ 2,500 +₹ 10,000 = ₹ 12,500||₹ 22,500 – ₹ 12,500 = ₹ 10,000||1% * ₹10,000 *3
= ₹ 300
|15th December||75 %||75 % of 50,000
|₹ 5,000||₹ 12,500 +₹ 5,000 = ₹ 17,500||₹ 37,500 – ₹ 17,500 = ₹ 20,000||1% * ₹20,000 *3
= ₹ 600
|15th March||100 %||100 % of 50,000
|₹ 7,500||₹ 17,500 +₹ 7,500 = ₹ 25,000||₹ 50,000 – ₹ 25,000 = ₹ 25,000||1% * ₹25,000 *1
= ₹ 250
Late Payment Interest : ₹ 150 + ₹ 300 + ₹ 600 + ₹ 250 = ₹ 1,300
It is important to file your income tax return and to pay your advance tax on time to avoid late payment interest.