The Income-tax Act 1961 provides for the charging of interest from the assessee for various defaults committed by him if there is a delay in the payment of amount due. The provisions relating to the charging of interest under the Income-tax Act are summarized below:
|
S.
No. |
Section |
Circumstances
under which Interest can be Charged |
Rate
of Interest |
Remarks/
Period |
|
1. |
115 P |
Failure to pay the whole or any part of the tax on distributed profits as required under Section 115 O (Tax on distributed profits of Domestic Company) |
1% per month or
part thereof of such tax |
Period beginning on
the date immediately after the last date on which such tax was payable and
ending with the date on which the tax is actually paid. |
|
2 |
115QB |
Failure to pay the whole or any part of the tax on distributed income as required by Section 115 QA (Tax on distributed income to share holders) |
1% per month or
part thereof of such tax |
Period beginning on
the date immediately after the last date on which such tax was payable and
ending with the date on which the tax is actually paid. |
|
3 |
115 S |
Failure to pay the
whole or any part of the tax on income distributed as required under Section
115 R (Tax on distributed income to unit
holders) |
1% per month or
part thereof of such tax |
Period beginning on
the date immediately after the last date on which such tax was payable and
ending with the date on which the tax is actually paid. |
|
4 |
115 TB |
Failure to pay the whole or any part of the tax on income distributed as required under Section 115 TA (Tax on distributed income to investors) |
1% per month or
part thereof of such tax |
Period beginning on
the date immediately after the last date on which such tax was payable and
ending with the date on which the tax is actually paid. |
|
5 |
115 TE |
Failure to pay the whole or any part of the tax on the accreted
income as required under Section 115 TD (Tax on accreted income) |
1% per month or part thereof of such tax |
Period beginning on
the date immediately after the last date on which such tax was payable and
ending with the date on which the tax is actually paid. |
|
6. |
201 (1A) |
DELAY IN PAYMENT OF
TDS Failure to deduct or short deduct tax at source or failure
to pay TDS to government account |
(a) 1% per month or part thereof on the amount of such tax |
(a) From the date on which such tax was deductible to the
date |
|
7. |
206C(7) |
DELAY IN PAYMENT OF
TCS Failure to collect tax or failure to remit the tax
collected to the |
1% per month or part thereof of tax not collected or paid |
From the date the tax was collectible till the date of actual payment. |
|
8. |
220(2) |
Failure to pay the amount as specified in the demand notice |
1% per month or part thereof |
After expiry of the time mentioned in the demand notice
till date of payment. |
|
9. |
234A |
Failure to file the return within due date specified in
Section 139 (1) or in response to notice under |
1% per month or part thereof on the amount of the tax on
the total income as determined under |
After expiry of the due date till the date of filing of
return, or where no return is filed, till the date of assessment. |
|
10. |
234B |
Failure to pay or short fall in payment of advance tax. |
1% per month or part thereof on the amount of the tax on the
total income as determined under Section 143(1) and where a regular
assessment is made, on amount of tax of the total income determined under
regular assessment, as reduced by prepaid taxes, relief/ deduction/credit as
per Act. |
From 01 April of the next financial year to the date of
determination of income. |
|
11. |
234C |
Failure to pay the instalments/ deferment of advance tax
as prescribed. |
1% per month or part thereof of the tax determined. |
3 months in respect of defaults relating to instalment due
in June, September and December |
|
12. |
234D |
Interest on excess refund granted. |
½% per month or part of a month on the whole or the excess
amount so refunded. |
The period commencing form the date of grant of refund
under Section 143 (1) to the date of regular assessment. |
Procedure
to be Followed in Calculation of Interest [Rule 119A]
In calculating interest
payable by the assessee or interest payable by the Central Government to the
assessee, the amount of tax, penalty or other sum in respect of which interest
is to be calculated will be rounded off to the nearest multiple of Rs. 100
ignoring any fraction of Rs. 100.
Text
of Rule 119A
PROCEDURE TO BE FOLLOWED IN CALCULATING INTEREST.
119A. In calculating the interest
payable by the assessee or the interest payable by the Central Government to
the assessee under any provision of the Act,—
|
(a) |
|
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 and 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; |
|
(b) |
|
where the 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; |
|
(c) |
|
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 and 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.] |
Following points are to be noted regarding
calculation of interest, whether such interest is receivable from or payable to
the Central Government (Rule 119A):
(a) Rounding off the amount on which
interest is to be calculated
Amount on which such interest is calculated will be rounded off to the multiple
of 100 by ignoring any fraction of 100. For example, amount on which interest
is to be calculated is ₹ 230 or ₹ 280, then it is to be
rounded off to ₹ 200 by ignoring fraction of ₹ 30
or ₹ 80.
(b)
Rounding off the period for which interest is
to be calculated
(i)
When interest is calculated on
monthly basis, any fraction of the month shall be taken as full month. For
example, Interest is to be calculated from 1st August to 10th December, then
interest shall be calculated for 5 months.
(ii) When interest is calculated on annual basis, any fraction of the month shall be ignored.
[1] Interest payable for non-payment of tax by domestic companies [Section 115P]
Where the principal officer of a
domestic company and the company fails to pay the whole or any part of the tax
on distributed profits referred to in sub-section (1) of section 115-O, within
the time allowed under sub-section (3) of that section, he or it shall be
liable to pay simple interest at the rate of one per cent for every month or
part thereof on the amount of such tax for the period beginning on the date
immediately after the last date on which such tax was payable and ending with
the date on which the tax is actually paid.
Conditions
when section 115P applicable
(i) the company fails to pay the whole or any
part of the tax on distributed profits referred to in 115-O (1),
(ii) within the time
allowed in that section.
Period
covered
(a) for every month or part
thereof
(b) on the amount of
such tax
(c) for the period beginning on the date
immediately after the last date on which such tax was payable
(d) and ending with
the date on which the tax is actually paid.
[2] Interest payable for non-payment of tax by
company [Section 115QB]
Where the principal officer of
the domestic company and the company fails to pay the whole or any part of the
tax on the distributed income referred to in sub-section (1) of section 115QA,
within the time allowed under sub-section (3) of that section, he or it shall
be liable to pay simple interest at the rate of one per cent for every month or
part thereof on the amount of such tax for the period beginning on the date
immediately after the last date on which such tax was payable and ending with
the date on which the tax is actually paid.
[3] Interest payable for non-payment of tax on
Distribution of Income [Section 115S]
Where the person responsible for
making payment of the income distributed by the specified company as referred
to in clause (h) of section 2 of the Unit Trust of India (Transfer of
Undertaking and Repeal) Act, 2002 (58 of 2002) or a Mutual Fund and the
specified company or the Mutual Fund, as the case may be, fails to pay the
whole or any part of the tax referred to in sub-section (1) or sub-section (2)
of section 115R, within the time allowed under sub-section (3) of that section,
he or it shall be liable to pay simple interest at the rate of one per cent
every month or part thereof on the amount of such tax for the period beginning
on the date immediately after the last date on which such tax was payable and
ending with the date on which the tax is actually paid.
Conditions
when section 115S applicable
(i) the company fails to pay the whole or any
part of the tax on distributed profits referred to in 115R,
(ii) within the time allowed in
that section,
Period
covered
(a) for every month or part thereof
(b) on the amount of such tax
(c) for the period beginning on the date
immediately after the last date on which such tax was
payable
(d) and ending with the date on
which the tax is actually paid.
[4]
Interest payable for non-payment of tax [Section 115TB]
Where the person responsible for
making payment of the income distributed by the securitisation trust and the
securitisation trust fails to pay the whole or any part of the tax referred to
in sub-section (1) of section 115TA, within the time allowed under sub-section
(2) of that section, he or it shall be liable to pay simple interest at the
rate of one per cent every month or part thereof on the amount of such tax for
the period beginning on the date immediately after the last date on which such
tax was payable and ending with the date on which the tax is actually paid.
[5] Interest payable
for non-payment of tax by trust or institution [Section 115TE]
Where the
principal officer or the trustee of the trust or the institution and the trust
or the institution fails to pay the whole or any part of the tax on the
accreted income referred to in sub-section (1) of section 115TD, within the
time allowed under sub-section (5) of that section, he or it shall be liable to
pay simple interest at the rate of one per cent for every month or part thereof
on the amount of such tax for the period beginning on the date immediately
after the last date on which such tax was payable and ending with the date on
which the tax is actually paid.
Rate of Interest
Interest payable by the principal
officer or trustee @ 1% for every month or part thereof of the delay in paying
tax as per subsection 5 of Section 115TD.
[6]
Interest for Failure to Deduct &
Pay the TDS [Section 201(1A)]
Without prejudice to the provisions
of sub-section (1) of Section 200, if any such person, principal officer or
company as is referred to in that sub-section does not deduct the whole or any
part of the tax or after deducting fails to pay the tax as required by or under
this Act, he or it shall be liable to pay simple interest,—
(i) at one per cent for every month or part of a
month on the amount of such tax from the date on which such tax was deductible to the date on
which such tax is deducted; and
(ii) at one and one-half per cent for every month
or part of a month on the amount of such tax from the date on which such tax
was deducted to the date on which such tax is actually paid,
and
such interest shall be paid before furnishing the statement in accordance with
the provisions of sub-section (3) of section 200:
PROVIDED that in case any person,
including the principal officer of a company fails to deduct the whole or any
part of the tax in accordance with the provisions of this Chapter on the sum
paid to a payee or on the sum credited to the account of a payee but
is not deemed to be an assessee in default under the first proviso to
sub-section (1), the interest under clause (i) shall be payable from the
date on which such tax was deductible to the date of furnishing of return of
income by such payee.
(2)
Where the tax has not been paid as aforesaid after it is deducted, the amount
of the tax together with the amount of simple interest thereon referred to in
sub-section (1A) shall be a charge upon all the assets of the person, or the
company, as the case may be, referred to in sub-section (1).
(3)
No order shall be made under sub-section (1) deeming a person to be an assessee
in default for failure to deduct the whole or any part of the tax from a person
resident in India, at any time after the expiry of seven years from the end of
the financial year in which payment is made or credit is given [or two
years from the end of the financial year in which the correction statement is
delivered under the proviso to sub-section (3) of section 200, whichever
is later.
(4)
The provisions of sub-clause (ii) of sub-section (3) of section 153 and
of Explanation 1 to section 153 shall, so far as
may, apply to the time limit prescribed in sub-section (3).
Explanation.
- For the purposes of this section, the expression
"accountant" shall have the meaning assigned to it in the Explanation to
sub-section (2) of section 288.
Applicability
Interest
under section 201(1A) is attracted in following cases:
Where
a person, responsible for deducting tax at source, fails to –
(a)
deduct
tax at source; or
(b) Assessee after deducting tax at
source fails to deposit the same
Amount
On
the amount of such tax
Rate of Interest
The Section
201(1A) provides the interest rates for the following two situations:
|
Situation |
Interest Rates |
Period of Interest |
|
Delay in deduction of TDS |
1% per month or part thereof |
From the month in which TDS was
deductible to the date of deduction |
|
Delay on payment of TDS |
1.5% per month or part thereof |
From the month in which TDS was
deducted to the date of payment of tax |
Period
From
the date on which such tax was deductible to the date on which such tax is
actually paid.
Interest
under section 201(1A) of the Act could be charged only upto the date of payment
of taxes by the deductees and not upto the date of filing of return of income
The interest under section
201(1A) of the Act is only compensatory in nature and the Government should be
compensated for the delayed remittance of TDS from the date of default by the
deductor to the actual date of remittance of taxes by the deductees.
The provisions of section 201(1A)
of the Act are independent of section 201(1) of the Act inasmuch as it starts
with ‘Without Prejudice to the provision of sub-section(1), There is no choice
available to the revenue and interest under section 201(1A) of the Act is to be
mandatorily charged for the delayed period of remittance and is automatic in
nature. It is not in dispute before us that the tax is required to be deducted
by assessee (Third Party Administrator)
on payments made to hospitals. Hence we are not inclined to agree with the
argument of the ld AR in this regard. Hence we hold that the ld Assessing
Officer had rightly levied interest under section 201(1A) of the Act in the
instant case. With regard to the calculation of interest under section 201(1A)
of the Act, we have already directed the ld Assessing Officer to re-compute the
said interest upto the date of actual remittance of taxes by the deductees and
not upto the date of filing of return of income by the deductees. (Related
Assessment Year : 2008-09) - [Medicare TPA Services India (P)
Ltd. v. ACIT-TDS Date
of Judgement : 05.09.2018 (ITAT Kolkata)]
[7] Interest for failure to collect tax at
source/delay in payment of TCS
[Section 206C(7)]
As per section 206C(7), if the
person responsible for collecting tax does not collect the tax or after
collecting the tax fails to pay it to the credit of Government within the due
date prescribed in this regard, then he shall be liable to pay simple interest
at the rate of 1% per month or part thereof on the amount of such tax. Interest
shall be levied for a period from the date on which such tax was collectible to
the date on which the tax was actually paid.
Applicability
Where a person, responsible for
collecting tax at source, fails to –
(a)
collect
tax at source; or
(b)
deposit
such tax after deducting the same
Amount
On
the amount of such tax
Rate
1%
(simple interest) per month or part thereof on the amount of such tax
Period
From
the date on which such tax was collectible to the date on which such tax is
actually paid.
Interest
in case if the buyer or licensee or lessee has paid the tax
As per section 206C(6A), a payer
who fails to collect whole or any part of the tax at source is treated as an
assessee-in-default. Howeve a collector who fails to collect the whole or any
part of the tax at source (other than TCS referred under sub-section 1F, 1G and
1H) shall not be deemed to be an assessee-in-default in respect of tax not
collected by him, if the buyer or licensee or lessee from whom tax is to be
collected satisfies the following conditions:
(a) Has furnished his return of
income under section 139.
(b) Has taken into account such
amount for computing income in such return of income.
(c) Has paid the tax due on the
income declared by him in such return of income.
(d) Has furnished a certificate to
this effect from an accountant in such Form No.27BA.
In other
words, in case of non collection of tax at source or short collection of tax,
if above conditions are satisfied, than the person responsible to collect tax
at source will not be treated as an assessee-in-default in respect of tax not
collected or short collected by him.
However,
in such a case, even if the person responsible to collect tax at source is not
treated as an assessee-in- default, he will be liable to pay interest under
section 206C(7). Interest shall be payable from the date on which such tax was
collectible to the date of furnishing of return of income by such buyer or
licensee or lessee. Interest in such a case, will be levied at 1% for every
month or part of a month.
[8] Interest for non-payment of tax as per
demand notice [Section 220(2)]
Section
220(2) deals with payment of interest in case of failure to pay tax within the
time specified in the demand notice. As per section 220(2), if the taxpayer
fails to pay the amount specified in any notice of demand issued under section
156(1) (as discussed) within the period as allowed in this regard, then he
shall be liable to pay simple interest at 1% for every month or part of a
month.
Interest
shall be levied for the period commencing from the day immediately following
the end of the period mentioned in the notice and ending with the day on which
the amount is paid.
After
processing of TDS/TCS statements an intimation is generated specifying the
amount payable or refundable. Such intimation shall be deemed as notice of
demand under Section 156. Failure to pay such tax specified in intimation shall
attract interest under Section 220(2).
It
is provided that where interest is charged under sub-section (1A) of section
201 on the amount of tax specified in the intimation issued under sub-section
(1) of section 200A for any period, then, no interest shall be charged under
Section 220(2) on the same amount for the same period.
It
is also provided that where interest is charged under sub-section (7) of
section 206C on the amount of tax specified in the intimation issued under
sub-section (1) of section 206CB for any period, then, no interest shall be
charged under sub-section (2) on the same amount for the same period
Conditions when section
220(2)applicable
(i) Any amount specified as payable in a notice
of demand under section 156
(ii) Is not paid on or before
Due date for
payment
(i)
thirty days of the service of the notice,
(ii)
Shorter period
(a) where the Assessing Officer
has any reason to believe that it will be detrimental to revenue and
(b) previous approval of the
Joint Commissioner,
(c) direct that the sum specified
in the notice of demand shall be paid within such period being a period less than thirty days may be
specified by him in the notice of demand.
Period covered
For every month or part of a
month comprised in the period commencing from the day as specified in the
notice till the day on which the amount is paid:
Variation in amount
of interest in certain cases
Where as a result of an order
under section 154, or section 155, or section 250, or section 254, or section
260, or section 262, or section 264 or an order of the Settlement Commission
under section 245D(4), the amount on which interest was payable under section
220(2) had been reduced, the interest shall be reduced accordingly and the
excess interest paid, if any, shall be refunded. However, if subsequently as a
result of an order passed under the said sections or under section 263, the
amount on which interest is payable is increased, the assessee shall pay
interest from the day immediately following the end of the period mentioned in
the first notice of demand and ending with the day on which the amount is paid
Interest shall be increased or
reduced on the following assessments.
(i)
section
154 : Order of Rectification of mistake
(ii)
section
155 : Other
amendments
(iii)
section
250 : Order
of Commissioner (Appeals)
(iv)
section
254 : Orders
of Appellate Tribunal
(v)
section
260 : Judgement
of the high court or the Supreme Court
(vi)
section
262 : Hearing
before the Supreme Court
(vii)
section
263 : Revision
of orders prejudicial to revenue by PCIT or CIT
(viii)
section
264 : Revision
of other orders by PCIT or CIT
(ix)
an
order of the Settlement Commission
Ø
in
a case where the interest is increased, the Assessing Officer shall serve on
the assessee a notice of demand in the prescribed form specifying the sum
payable
Ø
in
a case where the interest is reduced, the excess interest paid, if any, shall
be refunded.
[9]
Interest payable for defaults in furnishing return of income [Section
234A]
Where the return of income for any assessment year is furnished after
the due date or 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 for the
period commencing on the date immediately following the due date upto the date
of furnishing the return (in cases where return is furnished after the due
date) or upto the end of the Assessment Year (in cases where no return is
furnished) on the amount of shortfall in total income tax payable by the
assessee.
In simple words, interest @ 1% per month is payable on the amount of
income tax paid after the due date for filing of the return.
Text
of Section 234A
INTEREST FOR DEFAULTS IN FURNISHING RETURN OF
INCOME.
234A. (1) Where the return of income
for any assessment year under sub-section (1) or sub-section (4) of section 139,
or in response to a notice under sub-section (1) of section 142,
is furnished after the due date, or 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 date immediately
following the due date, and,—
(a) where the return is
furnished after the due date, ending on the date of furnishing of the return;
or
(b) where no return has been
furnished, ending on the date of completion of the assessment
under section 144,
on
the amount of the tax on the total income as determined under sub-section (1)
of section 143, and where a regular assessment is made, on the amount of
the tax on the total income determined under regular assessment, as reduced by
the amount of,—
(i) advance tax, if any, paid;
(ii) any tax deducted or collected at source;
(iia) any relief of tax
allowed under section 89;
(iii) any relief of tax
allowed under section 90 on account of tax paid in a country outside
India;
(iv) any relief of tax
allowed under section 90A on account of tax paid in a specified territory
outside India referred to in that section;
(v) any deduction, from the Indian income-tax
payable, allowed under section 91, on account of tax paid in a country
outside India; and
(vi) any tax credit allowed
to be set off in accordance with the provisions of section 115JAA
or section 115JD.
Explanation
1. - In this section, "due date" means the date
specified in sub-section (1) of section 139 as applicable in the case of
the assessee.
Explanation
2. - In this sub-section, “tax on the total income as determined
under sub-section (1) of section 143” shall not include the additional
income-tax, if any, payable under section 143.
Explanation
3. - Where, in relation to an assessment year, an assessment is
made for the first time under section 147 or section 153A, the
assessment so made shall be regarded as a regular assessment for the purposes
of this section.
Explanation
4. - [Omitted by the Finance Act, 2001, with retrospective effect
from 01.04.1989]
(2)
The interest payable under sub-section (1) shall be reduced by the interest, if
any, paid under section 140A towards
the interest chargeable under this section.
(3)
Where the return of income for any assessment year, required by a notice
under section 148 or section 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,
is furnished after the expiry of the time allowed under such notice, or 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 reassessment or
recomputation under section 147 or
reassessment under section 153A,
on
the amount by which the tax on the total income determined on the basis of such
reassessment or recomputation exceeds the tax on the total income determined
under sub-section (1) of section 143 or
on the basis of the earlier assessment aforesaid.
Explanation.
- [Omitted, ibid]
(4)
Where as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or
an order of the Settlement Commission under sub-section (4) of section 245D,
the amount of tax on which interest was payable under sub-section (1) or
sub-section (3) of this section has been increased or reduced, as the case may
be, the interest shall be increased or reduced accordingly, and—
(i) in a case
where the interest is increased, the Assessing Officer shall serve on the
assessee a notice of demand in the prescribed form specifying the sum payable,
and such notice of demand shall be deemed to be a notice under section 156 and
the provisions of this Act shall apply accordingly;
(ii) in a case where the interest is reduced, the
excess interest paid, if any, shall be refunded.
(5)
The provisions of this section shall apply in respect of assessments for the
assessment year commencing on the 1st day of April, 1989 and subsequent
assessment years.
Conditions when applicable
(a)
Not filing the return before the due date
(b)
Not filing the return
Rate
of interest
Interest under section 234A is
levied for delay in filing the return of income. Interest is levied at 1% per
month or part of a month. The nature of interest is simple interest. In other
words, the assessee is liable to pay simple interest at 1% per month or part of
a month for delay in filing the return of income.
Amount liable to interest under
section 234A
Interest under section 234A is
levied on the amount of tax as determined under section 143(1) and where
regular assessment is made, the tax on total income as determined under such
regular assessment as reduced by advance tax, tax deducted/collected at source,
relief claimed under various sections like sections 89/90/90A/91 and tax credit
claimed under section 115JAA/115JD.
Amount
on which Interest charged in brief
On the tax on the total income as
determined
(i) under sub-section (1) of section 143 or
(ii) on regular assessment as
reduced by the
(a)
advance tax, if any, paid
(b)
tax deducted or collected at source.
Period
for which interest under section 234A is charged
Interest under section 234A is
levied for every
month or part of a month From period commencing on the date immediately
following the due date, Till
(a)
where the return is furnished after the due date, ending on the date of
furnishing of the return; or
(b) where
no return has been furnished, ending on the date of completion of the
assessment under section 144,
(c) an
assessment is made for the first time under section 147 or section 153A, the
assessment so made shall be regarded as
a regular assessment for the purposes of this section.
KEY NOTE
While computing the period of levy of interest, part i.e. fraction of a
month is considered as full month.
Re-opening of Assessment under
section 148 or section 153A
CONDITIONS WHEN APPLICABLE
(a) When the return is furnished
after the expiry of the time allowed under such notice,
(b) When the return is Not
furnished
Period
for which interest is charged
(a)
When return is furnished 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, where the return is furnished after the expiry of
the time aforesaid, ending on the date of furnishing the return.
(b) When
return is not furnished where no return has been furnished, ending on the date
of completion of the re-assessment or re-computation under section 147 or
reassessment under section 153A
Amount
on which Interest charged
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.
Interest shall be increased or reduced
on the following assessments
(i)
section
154 : Order of Rectification of mistake
(ii)
section
155 : Other
amendments
(iii)
section
250 : Order
of Commissioner (Appeals)
(iv)
section
254 : Orders
of Appellate Tribunal
(v)
section
260 : Judgement
of the high court or the Supreme Court
(vi)
section
262 : Hearing
before the Supreme Court
(vii)
section
263 : Revision
of orders prejudicial to revenue by PCIT or CIT
(viii)
section
264 : Revision
of other orders by PCIT or CIT
(ix)
an
order of the Settlement Commission
Ø
in
a case where the interest is increased, the Assessing Officer shall serve on
the assessee a notice of demand in the prescribed form specifying the sum
payable
Ø
in
a case where the interest is reduced, the excess interest paid, if any, shall
be refunded.
PROVISIONS
ILLUSTRATED
Mr. A, fails to file his tax return
due on say 31st July and has a tax due of Rs 1,00,000/- On 31st December, he
files his tax return.
In this case,
Interest charge under section 234A
= 1,00,000 x 1% x 5 months = Rs. 5,000/-
Hence,
Mr. A will have to pay Rs. 1,00,000 + Rs 5,000 + any other interests or
penalties for delay in payment of tax.
When the due date has been extended
Many times the
due date to furnish the income tax return gets extended beyond the due date. The
definition of ‘due date’ under section 234A is mentioned as “the date specified
in section 139(1) as applicable in the case of the assessee.”
The
CBDT has powers to extend the due date under section 119 to relax the
provisions related to section 139 as well as section 234A. Accordingly, CBDT
extends the due date to furnish the income tax return by the assessees. Sometimes,
CBDT extends the due date and specifically mentions that interest under section
234A will be applicable from the original due date and not the extended due
date. Unless specifically mentioned in the order,
the interest under section 234A will be calculated after the extended due date
and not the original due date.
Interest under section 234A - Not Chargeable on the
Amount of Self-assessment Tax Paid Before the Due Date of Filing of Return of
Income
The CBDT has
issued Circular No. 2/2015 dated 10.02.2015 on the issue of chargeability of
interest under section 234A of the Income-tax Act, 1961 on self-assessment tax
paid before the due date of filing the return of income. The CBDT has pointed
out that in CIT
v. Prannoy Roy (2009) 309 ITR 231 (SC), the Supreme Court
has held that interest under section 234A of the Act on default in furnishing
return of income shall be payable only on the amount of tax that has not been
deposited before the due date of filing the return for the relevant assessment
year. The CBDT has accordingly reviewed the present practice of charging
interest under section 234A of the Act on self-assessment tax paid before the
due date of filing the return of income. The CBDT has decided that no interest
under section 234A of the Act is chargeable on the amount of self-assessment
tax paid by the assessee before the due date of filing the return of income.
CBDT Circular No. 02/2015, dated 10.02.2015
Subject: Chargeability of Interest under Section 234A
of the Income-tax Act, 1961 on self- assessment tax paid before the due date of
filing of return of income- regarding
Interest under Section 234A of the
Income-tax Act, 1961(hereinafter the Act) is charged in case of default in
furnishing return of income by an assessee. The interest is charged at th
specified rate on the amount of tax payable on the total income, as reduced by
the amount of advance tax, TDS/TCS, any relief of tax allowed under section 90
and section 90A, any deduction allowed under section 91 and any tax credit
allowed in accordance with the provisions of section 115JAA and section 115JD
of the Act. Since self assessment tax is not mentioned as a component of tax
to be reduced from the amount on which interest under section 234A of the Act
is chargeable, interest is being charged on the amount of self-assessment tax
paid by the assessee even before the due date of filing of return.
2.
It has been held by the Hon'ble Supreme Court in the case of CIT v Prannoy Roy
(2009) 309 ITR 231 (SC) that the interest under section 234A of the Act on
default in furnishing return of income shall be payable only on the amount of
tax that has not been deposited before the due date of filing of the income-tax
return for the relevant assessment year. Accordingly, the present practice of
charging interest under section 234A of the Act on self-assessment tax paid
before the due date of filing return was reviewed by CBDT.
3.
The Board has decided that no interest under section 234A of the Act is
chargeable on the amount of self-assessment tax paid by the assessee before the due date of filing of return of
income.
4. This
Circular may be brought to the notice of all officers for compliance.
5. Hindi
version shall follow.
[10]
Interest payable for default in payment of advance tax [Section 234B]
As per Section 208 of the Act,
advance tax shall be payable by the taxpayer during the financial year if the
estimated tax liability on the income of assessee in that respective financial
year is ten thousand rupees (Rs. 10000) or more. Interest under section 234 B
is levied in following two cases:
(a) When the taxpayer has failed to pay advance tax though he is liable to pay advance tax; or
(b) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax.
Interest for default in payment of
advance tax is levied @ 1% (Simple Interest) per month or part of a month.
Interest is calculated on the amount of unpaid advance tax. If there is a
shortfall in payment of advance tax, then interest is levied on the amount by
which advance tax is short paid.
An assessee who is liable to pay advance tax has failed
to pay such tax or where the advance tax paid by such assessee is less than
ninety per cent of the assessed tax, the assessee shall be liable to pay simple
interest at the rate of one per cent for every month or part of a month for
period from the date on which the payment of advance tax became due on the
amount of shortfall in the amount of advance tax paid.
In simple words, interest @ 1% per month is payable on
the amount of income tax paid after the end of the financial year.
Section 234B provides for levy of
interest for default in payment of advance tax. Interest under section
234B is levied in following two cases:
(a) When the taxpayer has failed to pay advance
tax though he is liable to pay advance tax; or
(b) Where the advance tax paid by the taxpayer
is less than 90% of the assessed tax (meaning of assessed tax is discussed
later).
As
per Section 208 of the Act, advance tax shall be payable by the taxpayer during
the financial year if estimated tax liability of assessee during that year is
Rs. 10,000 or more.
Text of Section 234B
INTEREST
FOR DEFAULTS IN PAYMENT OF ADVANCE TAX.
234B. (1) Subject to the other
provisions of this section, where, in any financial year, an assessee who is
liable to pay advance tax under section 208 has
failed to pay such tax or, where the advance tax paid by such assessee under
the provisions of section 210 is
less than ninety per cent of the assessed tax, 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 from the 1st day of April next following such
financial year to the date of determination of total income under sub-section
(1) of section 143 and
where a regular assessment is made, to the date of such regular assessment, on
an amount equal to the assessed tax or, as the case may be, on the amount by
which the advance tax paid as aforesaid falls short of the assessed tax.
Explanation
1.—In this section, “assessed tax” means the tax on the total
income determined under sub-section (1) of section 143 and
where a regular assessment is made, the tax on the total income determined
under such regular assessment as reduced by the amount of,—
(i) any tax
deducted or collected at source in accordance with the provisions of Chapter
XVII on any income which is subject to such deduction or collection and which
is taken into account in computing such total income;
(ia) any relief of tax
allowed under section 89;
(ii) any relief of tax
allowed under section 90 on
account of tax paid in a country outside India;
(iii) any relief of tax
allowed under section 90A on
account of tax paid in a specified territory outside India referred to in that
section;
(iv) any deduction, from the
Indian income-tax payable, allowed under section 91,
on account of tax paid in a country outside India; and
(v) any tax credit
allowed to be set off in accordance with the provisions of section 115JAA or section 115JD.
Explanation
2.—Where, in relation to an assessment year, an assessment is
made for the first time under section 147 or section 153A,
the assessment so made shall be regarded as a regular assessment for the
purposes of this section.
Explanation
3.—In Explanation 1 and in sub-section (3)
"tax on the total income determined under sub-section (1) of section 143"
shall not include the additional income-tax, if any, payable under section 143.
(2)
Where, before the date of determination of total income under sub-section (1)
of section 143 or
completion of a regular assessment, tax is paid by the assessee under section 140A or
otherwise,—
(i) interest
shall be calculated in accordance with the foregoing provisions of this section
up to the date on which the tax is so paid, and reduced by the interest, if
any, paid under section 140A towards
the interest chargeable under this section;
(ii) thereafter, interest
shall be calculated at the rate aforesaid on the amount by which the tax so
paid together with the advance tax paid falls short of the assessed tax.
(2A)
(a) where an application under sub-section (1) of section 245C for
any assessment year has been made, 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 1st day of April of such assessment
year and ending on the date of making such application, on the additional
amount of income-tax referred to in that sub-section;
(b) where as a result of an
order of the Settlement Commission under sub-section (4) of section 245D for
any assessment year, the amount of total income disclosed in the application
under sub-section (1) of section 245C is
increased, 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 1st day of April of such assessment year and ending on the
date of such order, on the amount by which the tax on the total income
determined on the basis of such order exceeds the tax on the total income
disclosed in the application filed under sub-section (1) of section 245C;
(c) where, as a result of an
order under sub-section (6B) of section 245D,
the amount on which interest was payable under clause (b) has been
increased or reduced, as the case may be, the interest shall be increased or
reduced accordingly;
(3)
where, as a result of an order of reassessment or recomputation under section 147 or section 153A,
the amount on which interest was payable in respect of shortfall in payment of
advance tax for any financial year under sub-section (1) is increased, 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 1st
day of April next following such financial year and ending on the date of the
reassessment or recomputation under section 147 or section 153A,
on the amount by which the tax on the total income determined on the basis of
the reassessment or recomputation exceeds the tax on the total income
determined under sub-section (1) of section 143 or
on the basis of the regular assessment as referred to in sub-section (1), as
the case may be;
(4)
where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264,
the amount on which interest was payable under sub-section (1) or sub-section
(3) has been increased or reduced, as the case may be, the interest shall be
increased or reduced accordingly, and—
(i) in a case
where the interest is increased, the Assessing Officer shall serve on the
assessee a notice of demand in the prescribed form specifying the sum payable
and such notice of demand shall be deemed to be a notice under section 156 and
the provisions of this Act shall apply accordingly;
(ii) in a case where
the interest is reduced, the excess interest paid, if any, shall be refunded;
(5)
the provisions of this section shall apply in respect of assessments for the
assessment year commencing on the 1st day of April, 1989 and subsequent
assessment years.
Conditions when section 234B applicable
(a) an assessee who is liable to pay advance tax
under section 208 has failed to pay such tax or,
(b) where the advance tax paid is less than ninety
per cent of the assessed tax
Period for which interest is
charged
Every
month or part of a month from the 1st day of April next following such
financial year to the date of determination of total income
(a)
under section 143(1) and
(b)
where a regular assessment is made, to the date of such regular assessment,
as reduced by the
(a) advance tax, if any, paid
(b) tax deducted or collected at source.
KEY
NOTE
(i) Where an assessment is made for
the first time under section 147 or section 153A, the assessment so made shall
be regarded as a regular assessment.
(ii) Tax on the total income shall not include the
additional income-tax
Assessed tax means
The tax
on the total income determined as reduced by the amount of tax deducted or
collected at source and which is taken into account in computing such total
income.
Re-opening
of Assessment under section 148 or section 153A
CONDITIONS
WHEN APPLICABLE
Where, as
a result of an order of re-assessment or re-computation under section 147 or
section 153A, the amount on which interest was payable under sub-section (1) is
increased
Period for which interest is
charged
For every
month or part of a month comprised in the period commencing on the day following
the date of determination of total income
(a) under sub-section (1) of
section 143 and
(b) where a regular assessment is
made as is referred to in sub-section (1) following the date of such regular assessment and ending
Ø
on
the date of the re-assessment or re-computation under section 147 or section
153A,
Ø
on
the amount by which the tax on the total income determined on the basis of the
re-assessment or re-computation
exceeds the tax on the total income determined earlier
Interest
shall be increased or reduced on the following assessments.
(i)
section
154 : Order of Rectification of mistake
(ii)
section
155 : Other
amendments
(iii)
section
250 : Order
of Commissioner (Appeals)
(iv)
section
254 : Orders
of Appellate Tribunal
(v)
section
260 : Judgement
of the high court or the Supreme Court
(vi)
section
262 : Hearing
before the Supreme Court
(vii)
section
263 : Revision
of orders prejudicial to revenue by PCIT or CIT
(viii)
section
264 : Revision
of other orders by PCIT or CIT
(ix)
an
order of the Settlement Commission
Ø
in
a case where the interest is increased, the Assessing Officer shall serve on
the assessee a notice of demand in the prescribed form specifying the sum
payable
Ø
in
a case where the interest is reduced, the excess interest paid, if any, shall
be refunded.
[11]
Interest payable for default in payment of instalment(s) of advance tax
[Section 234C]
Section 234C provides for levy of
interest for default in payment of instalment(s) of advance tax.
An assessee, (other than an assessee who declares profits and gains in
accordance with the provisions of sub-section (1) of section 44AD or
sub-section (1) of section 44ADA, as the case may be) who is liable to pay
advance tax under section 208 has failed to pay such tax or
(i) the advance tax paid by such assessee on its current income on or before the 15th day of June is less than fifteen per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of September is less than forty-five per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December is less than seventy-five per cent of the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent per month for a period of three months on the amount of the shortfall from fifteen per cent or forty-five per cent or seventy-five per cent, as the case may be, of the tax due on the returned income;
(ii) the advance tax
paid by the assessee on the current income on or before the 15th day of March
is less than the tax due on the returned income, then, the assessee shall be
liable to pay simple interest at the rate of one per cent on the amount of the
shortfall from the tax due on the returned income.
Provided that if the advance tax paid by
the assessee on the current income, on or before the 15th day of June or the
15th day of September, is not less than twelve per cent or, as the case may be,
thirty-six per cent of the tax due on the returned income, then, the assessee
shall not be liable to pay any interest on the amount of the shortfall on those
dates.
KEY NOTE
In case of salaried employees, the advance
tax liability is to be computed on the income other than salary income. TDS
deducted by the employer is not to be adjusted against this liability.
No levy of interest if shortfall in
payment of advance tax is due to capital gains or winning from lottery, etc.
Interest under section 234C is not
levied, if, the shortfall in payment of advance tax is due to failure to estimate
the amount of
(i) Capital gains
(ii) Income referred to in section
2(24)(ix) (i.e. winning from lotteries, crossword puzzle, , races (including
horse races), card games and any other activity in the nature of gambling,
betting etc.) or
(iii) Income from a new business i.e. income
under the head “Profits and gains of business or profession” in cases where the
income accrues or arises under the said head for the first time; or
(iv) Income referred to in section
115BBDA (i.e., dividend received from a domestic company exceeds Rs. 10,00,000)
and the taxpayer pays the required advance tax on such income as a part of
immediate following instalments or till 31st March, if no instalment is
pending.
and
if the assessee has paid the amount of tax payable in respect of the above
mentioned income as part of the remaining installments of advance tax which are
due or where no such installments are due, by the 31st March of the financial
year, no interest shall be leviable in respect of such shortfall.
Rate of interest
Interest under section 234C for
default in payment of instalment(s) of advance tax is charged at 1% per month
or part of a month. The nature of interest is simple interest. In other words,
the taxpayer is liable to pay simple interest @ 1% per month or part of a month
for short payment/ non-payment of individual instalment(s) of advance tax.
As
per section 208, every person whose estimated tax liability for the year
exceeds Rs. 10,000, shall pay his tax in advance in the form of “advance tax”
by following dates :
|
Status |
By 15th June |
By 15th September |
By 15th December |
By 15th March |
|
Assessees (other than those who opted for presumptive
taxation scheme of section 44AD or section 44ADA) |
Upto 15% of advance tax |
Upto 45% of advance tax |
Upto 75% of advance tax |
Upto 100% of advance tax |
|
Assessees who opted for presumptive taxation scheme of
section 44AD or section 44ADA |
Nil |
Nil |
Nil |
Upto 100% of
advance tax |
Calculation of Interest under section 234C
[In case of a Taxpayer other than the one opting for presumptive
income under section 44AD or 44ADA]
|
Rate
of Interest |
Period
of Interest |
Amount
on which Interest is calculated |
|
|
If
Advance Tax paid on or before June 15 is less than 15% of the Amount* |
Simple
interest @1% per month |
3
months |
15%
of Amount* (-)tax already deposited before June 15 |
|
If
Advance Tax paid on or before September 15 is less than 45% of the Amount* |
Simple
interest @1% per month |
3
months |
45%
of Amount* (-) tax already deposited before September 15 |
|
If
Advance Tax paid on or before December 15 is less than 75% of the Amount* |
Simple
interest @1% per month |
3
months |
75%
of Amount* (-) tax already deposited before December 15 |
|
If
Advance Tax paid on or before March 15 is less than 100% of the Amount* |
Simple
interest @1% per month |
1
month |
100%
of Amount* (-) tax already deposited before March 15 |
*Amount on which percentage of advance
tax needs to be calculated = Tax on total income (-) TDS (-) relief under section 90 or 91
(-) tax credit under section 115JD.
Key Note
Any tax paid till 31st March will be treated as advance
tax.
PROVISIONS
ILLUSTRATED
Consider that assessee’s total tax liability for financial
year 2020-21 is Rs. 200,000 and it needs to be paid in installments as
explained above. Assume there is no TDS here. If assessee made partial payments
instead, he will be liable to pay interest as per the last column in the table
below:
|
Payment
Dates |
Advance
Tax payable |
Total
Advance Tax paid |
Shortfall
(Cumulative) |
Penalties
(Cumulative) |
|
15th
June |
30,000 |
10,000 |
20,000 |
@1%
* 3*20,000 = 600 |
|
15th
September |
90,000 |
50,000 |
40,000 |
@1%
* 3 *40,000 = 1,200 |
|
15th
December |
1,50,000 |
70,000 |
80,000 |
@1%
* 3 *80,000 = 2,400 |
|
15th
March |
2,00,000 |
1,00,000 |
1,00,000 |
1%
* 1 *1,00,000 = 1000 |
|
Total
Interest payable = (600+1,200+2,400+1,000 |
5,200 |
|||
Interest under
section 234B or 234C in the Case of MAT
All companies are liable for
payment of advance tax having regard to the provisions contained under section
115JB. Consequently, interest under sections 234B and 234C will be calculated
after taking into consideration section 115JB & CBDT Circular No. 13/2001,
dated 09.11.2001.
CBDT Circular No. 13 of
2001, dated 09.11.2001
Subject : Liability for payment of advance tax under new MAT provisions
of section 115JB of the Income-tax Act
The Finance Act, 2000, inserted section 115JB of the
Income-tax Act, 1961, with effect from 01.04.2001, i.e., from the assessment
year 2001-02 providing for levy of Minimum Alternate Tax on companies. Section
115JB conceptually differs from erstwhile section 115JA, which provided for MAT
on companies, so far as it does not deem any part or the whole of book profit
as total income. However, the new provision of section 115JB provides that if
tax payable on total income is less than 7.5% of book profit, the tax payable
under this provision shall be 7.5% of book profit.
2. Instances have come to the notice of the Board that
a large number of companies liable to tax under the new MAT provisions of
section 115JB are not making advance tax payments. It may be emphasised that
the new provision of section 115JB is a self-contained code. Sub-section (1)
lays down the manner in which income-tax payable is to be computed. Sub-section
(2) provides for computation of “book profit”. Sub-section (5) specifies that
save as otherwise provided in this section, all other provisions of this Act
shall apply to every assessee, being a company mentioned in that section. In
other words, except for substitution of tax payable under the provision and the
manner of computation of book profits, all the provisions of the tax including
the provision relating to charge, definitions, recoveries, payment, assessment,
etc., would apply in respect of the provisions of this section.
3. The scheme of the Income-tax Act also needs to be
referred to. Section 4 of the Income-tax Act charges to tax the income at any
rate or rates which may be prescribed by the Finance Act every year. Section
207 deals with the liability for payment of advance tax, and section 209 deals
with its computation based on the rates in force for the financial year, as are
contained in the Finance Act. The rates of tax are provided in the finance Act.
The first provisio to section 2(8) of the Finance Act, 2001, reads as under :
“Provided that in cases to which the provisions of Chapter
XII or Chapter XII-A or section 115JB or sub-section (1A) of section 161 or
section 164A or section 167B of the Income-tax Act apply, ‘advance tax’ shall
be computed with reference to the rates imposed by this sub-section or the
rates as specified in that Chapter or section, as the case may be :”
The third proviso to section 2(8) of the Finance Act,
2001, further provides that the tax payable by way of advance tax in respect of
income chargeable under section 115JB, shall be increased by a surcharge of 2%.
The Finance Act, 2000, also contained similar provisions.
4. It is, thus, abundantly clear that all companies
are liable for payment of advance tax having regard to the provisions contained
in new section 115JB. Consequently, the provisions of sections 234B and 234C
for interest on defaults in payment of advance tax and deferment of advance tax
would also be applicable where facts of the case warrant.
5. This may be brought to the notice of all officers
working in your region.
Charge of Interest
is Mandatory
Charge of interest is mandatory.
Sections 234A, 234B and 234C in clear terms impose a mandate to collect
interest at the rates stipulated therein. The expression ‘shall’ used in the
said section cannot by any stretch of imagination be construed as ‘may’. There
are sufficient indications in the scheme of the Act to show that the expression
‘shall’ used in sections 234A, 234B, and 234C is used by the Legislature
deliberately and it has not left any scope for interpreting the said expression
as ‘may’ – [CIT v. Anjum M.H. Ghaswala (2001)
119 Taxman 352 (SC)]
[12] Interest on excess refund granted [Section
234D]
Section
234D is applicable from 01.06.2003. Under the provisions of section 143(4),
where a regular assessment under section 143(3) or section 144 is made, -
(a)
any
tax or interest paid under section 143(1) shall be deemed to have been paid
towards such regular assessment;
(b) and if no refund is due on regular assessment
or the amount refunded under section 143(1) exceeds the amount refundable on
regular assessment, the whole or the excess amount so refunded is deemed to be
tax payable by the assessee.
Text of Section 234D
INTEREST ON EXCESS REFUND.
234D. (1)
Subject to the other provisions of this Act, where any refund is granted to the
assessee under sub-section (1) of section 143, and—
(a) no
refund is due on regular assessment; or
(b)
the amount refunded under sub-section (1) of section 143 exceeds the
amount refundable on regular assessment,
the assessee shall be liable to pay
simple interest at the rate of one-half per cent on the whole or the excess
amount so refunded, for every month or part of a month comprised in the period
from the date of grant of refund to the date of such regular assessment.
(2) Where, as a result of an order
under section 154 or section 155 or section
250 or section 254 or section 260 or section 262 or section
263 or section 264 or an order of the Settlement Commission
under sub-section (4) of section 245D, the amount of refund granted under
sub-section (1) of section 143 is held to be correctly allowed,
either in whole or in part, as the case may be, then, the interest chargeable,
if any, under sub-section (1) shall be reduced accordingly.
Explanation 1.—Where, in relation to an assessment
year, an assessment is made for the first time under section 147 or
section 153A, the assessment so made shall be regarded as a regular assessment
for the purposes of this section.
Explanation 2.—For the removal of doubts, it is
hereby declared that the provisions of this section shall also apply to an
assessment year commencing before the 1st day of June, 2003 if the proceedings
in respect of such assessment year is completed after the said date.
What is regular assessment
Regular
assessment is an assessment carried out under Section 143(3) under a scrutiny
notice issued to the taxpayer. This also includes the best judgement assessment
under Section 144. Any assessments made for the first time under Section 147 or
153A will also be treated as regular assessment.
Applicability
(a)
Where
any refund is granted to the assessee under section 143(1) and
(b)
no
refund is due on regular assessment; or
(c)
the
amount refunded exceeds the amount refundable on regular assessment;
Amount
On the excess
amount refunded
Rate of Interest
The rate of
interest under Section 234D is levied at 0.5% ½% (simple interest) per
month or a part of the month on the refund amount recoverable from the
taxpayer.
Period
The interest is
calculated from the date of granting the refund under Section 143(1) until the
date of regular assessment.
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