Important Keyword: Advance Tax, Income Tax Filing, ITR Penalty, Section 234B.
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Section 234B: Interest for Non-Payment of Advance Tax
The Income Tax Department (ITD) has set specific deadlines for taxpayers to fulfill their advance tax obligations. As outlined in Section 208 of the Income-tax Act, individuals must calculate their advance tax liability and make payments if their estimated tax liability for the fiscal year amounts to INR 10,000 or more.
Failing to pay the required advance tax amount or falling short of the mandated payments results in the imposition of interest under Section 234B of the Income Tax Act. This interest is levied at a rate of 1% per month or part thereof on the deficit amount of advance tax. It continues to accrue from the end of the financial year until the taxpayer settles their outstanding tax liability.
What is section 234B?
Section 234B of the Income Tax Act levies penalty interest on taxpayers who fail to pay advance tax during the assessment year. This penalty applies from the end of the financial year until the actual date of tax payment.
When taxpayers do not meet their advance tax obligations by the due dates set during the financial year, Section 234B comes into effect. It mandates interest payments on the amount of tax that should have been paid earlier but wasn’t. This interest accrues from the conclusion of the financial year until the actual settlement of taxes owed.
When is section 234B applicable?
Interest under section 234B of the Income Tax Act is computed in specific scenarios:
Non-payment of Advance Tax: If a taxpayer is liable to pay advance tax but fails to do so.
Shortfall in Advance Tax Payment: When the advance tax paid is less than 90% of the Assessed Tax. The Assessed Tax is calculated as the total tax liability minus TDS (Tax Deducted at Source) and TCS (Tax Collected at Source).
It’s important to note that the shortfall in advance tax payment is considered only once when recalculating the interest under section 234B, provided the taxpayer submits an updated Income Tax Return (ITR).
In addition to section 234B, the Income Tax Act covers other provisions related to interest and fees:
Interest for Late Filing of ITR: Covered under Section 234A, which imposes interest if the taxpayer files the ITR after the due date.
Deferred Payment of Advance Tax: Addressed by Section 234C, which applies when there is a delay or shortfall in the payment of advance tax installments.
Fee for Late Filing of ITR: Imposed under Section 234F, where a fee is levied for filing the ITR after the due date but before December 31st of the assessment year.
Example of Interest u/s 234B of Income Tax Act
Case 1: TDS is not deducted
In Ria’s case, her total tax liability amounted to INR 40,000. According to tax regulations, since this liability exceeds INR 10,000, Ria was required to pay advance tax in installments throughout the financial year. However, Ria paid the entire tax amount of INR 40,000 on 16th June when filing her income tax return, without making any advance tax payments earlier in the year.
Due to the non-payment of advance tax as required, Ria will be subject to interest under section 234B of the Income Tax Act. This interest will be levied from the end of the financial year (typically 31st March) until the date of actual payment, which in Ria’s case is 16th June.
The calculation of Interest under section 234B is as follows:
Particulars
Amount
Assessed tax
INR 40,000
Amount on which interest will be payable
INR 40,000
Rate of interest
Simple interest @1% per month
Period for which interest will be payable
1st April to 16th June (i.e., 3 months)
Interest payable (INR 40,000 x 1% x 3 months)
INR 1200
Case 2: TDS is deducted
In Vijay’s case, his total tax liability for the year is INR 32,500. According to tax regulations, Vijay was required to pay advance tax in installments throughout the financial year. However, he did not make any advance tax payments until 31st March, which is the end of the financial year.
Despite not paying advance tax, Vijay has a TDS (Tax Deducted at Source) credit of INR 5,000. This credit reduces his total tax liability to INR 27,500 (INR 32,500 – INR 5,000).
Vijay paid the entire tax liability of INR 27,500 at the time of filing his income tax return on 31st July. As per the provisions of section 234B of the Income Tax Act, since Vijay did not pay any advance tax by the due dates during the assessment year, he will be liable to pay interest. This interest is calculated from the 1st day of the assessment year (which is typically 1st April) until the date of actual payment and filing of his return, which is 31st July in this case.
The calculation of Interest under section 234B is as follows:
Particulars
Amount
Assessed tax
INR 32,500
Amount on which interest will be payable
INR 27,500
Rate of interest
Simple interest @1% per month
Period for which interest will be payable
1st April to 31st July (i.e., 4 months)
Interest payable (INR 27500 x 1% x 4 months)
INR 1100
Case 3: Shortfall in payment of advance tax
In Mohan’s case, his total tax liability for the year was INR 60,000. According to tax regulations, taxpayers are required to pay advance tax in installments throughout the financial year. The minimum amount to be paid as advance tax is 90% of the assessed tax liability.
Based on his total tax liability of INR 60,000, Mohan should have paid at least 90% of this amount as advance tax, which equals INR 54,000 (90% of INR 60,000).
Mohan paid INR 45,000 as advance tax on 15th March. This amount is less than 90% of his total tax liability of INR 60,000. Therefore, he did not meet the required advance tax payment threshold by the due date of 31st March.
Mohan paid the remaining balance of INR 15,000 on 20th June while filing his income tax return. As per section 234B of the Income Tax Act, since Mohan’s advance tax payment was less than 90% of his assessed tax liability, he will be liable to pay interest on the shortfall amount of INR 15,000. This interest is calculated from the 1st day of the assessment year (typically 1st April) until the date of actual payment, which in this case is 20th June.
The calculation of Interest under section 234B is as follows:
Important Keyword: Advance Tax, Income Tax Filing, Section 234C.
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Section 234C: Interest on Deferment in Payment of Advance Tax
The Income Tax Department allows taxpayers to pay their tax liabilities in advance through four installments, known as advance tax. This payment is required if the net tax liability, after deducting prepaid taxes like TDS and relief, amounts to INR 10,000 or more in a financial year. However, failure to meet these obligations can lead to consequences in the form of interest under section 234C of the Income Tax Act.
Section 234C imposes interest when there is a default in paying advance tax. The interest is calculated based on the amount of tax payable and the delay period between the due dates of the installments. It serves as a deterrent for taxpayers to ensure timely and regular payment of their advance tax obligations to avoid accruing additional financial charges.
What is Interest u/s 234C?
Interest u/s 234C is levied in case of deferment of advance tax payment. Interest @ 1% is levied per month or part of it.
The taxpayer has to pay interest u/s 234C if the payment of advance tax is:
Less than 12% of assessed tax before 15th June
Less than 26% of assessed tax before 15th September
Less than 75% of assessed tax before 15th December
Less than 100% of assessed tax before 15th December
What is the difference between section 234B & section 234C?
Section 234B:
Purpose: Imposes interest when a taxpayer fails to pay advance tax or pays less than 90% of the assessed tax liability during the financial year.
Timing: Liability for interest under Section 234B arises after the end of the financial year and continues until the date of actual payment of tax.
Rate: Typically 1% simple interest per month or part thereof on the amount of tax payable but not paid as per advance tax requirements.
Section 234C:
Purpose: Imposes interest when there is deferment or delay in the payment of advance tax installments during the financial year.
Criteria: Taxpayer is required to pay advance tax in installments as per specific percentages of the assessed tax liability by prescribed due dates (15th June, 15th September, 15th December, and 15th March).
Rate: Generally 1% per month or part thereof on the amount of shortfall in payment compared to the prescribed percentages.
Calculation of Interest u/s 234C
The below table clarifies the interest rate applicable in different cases as per the due dates.
Scenario
Interest
If paid less than 15% of advance tax up to 15th June
1% per month i.e. 3 months on the shortfall amount below 15%
If paid less than 45% of advance tax up to 15th September
1% per month i.e. 3 months on the shortfall amount below 45%
If paid less than 75% of advance tax up to 15th December
1% per month i.e. 3 months on the shortfall amount below 75%
If paid less than 100% of advance tax up to 15th March
1% on the shortfall amount below 100% for 1 month
EXAMPLE :
Tarun is running a small shop. His net tax liability is INR 50,000. He has paid advance tax as given below:
INR 7500 on 15th June
INR 12,000 on 15th September
INR 14,000 on 15th December
INR 10,000 on 15th March
Due Dates
Advance Tax Payable
Total Advance Tax paid till Due Date
Shortfall
Interest
15th June
7,500 (15% of 50,000)
7,500
0
0
15th September
22,500 (45% of 50,000)
19,500 (7,500 + 12,000)
3,000
90 (3,000 @ 1% x 3 months)
15th December
37,500 (75% of 50,000)
33,500 (7,500 + 12,000 + 14,000)
4,000
120 (4,000 @ 1% x 3 months)
15th March
50,000 (100% of 50,000)
43,500 (7,500 + 12,000 + 14,000 + 10,000)
6,500
65 (6,500 @ 1% x 1 month)
Hence, as per the calculation, Tarun will have to pay INR 275 interest u/s 234C.
Exceptions from paying interest u/s 234C
Exceptions exist under Section 234C of the Income Tax Act where taxpayers are exempted from paying interest for deferment in advance tax payments. These exceptions are designed to provide relief under specific circumstances:
Resident Senior Citizen without Business Income:
If you are a resident senior citizen and your income does not include profits and gains from business or profession (PGBP), you are exempted from paying advance tax. Consequently, interest under Section 234C is not applicable in such cases.
Net Tax Liability Below INR 10,000:
If your total tax liability after deducting prepaid taxes like TDS is less than INR 10,000 for the financial year, you are not required to pay advance tax. Therefore, interest under Section 234C will not be levied.
Important Keyword: Income Tax Filing, ITR Penalty, Section 234F.
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Section 234F: Penalty for Late Filing of ITR
“There’s a cost to tardiness, as seen with late tax filers facing penalties for missing deadlines. The government introduced Section 234F in the Income Tax Act during Budget 2017 to enforce a late filing fee.”
What is Section 234F?
Section 234F of the Income Tax Act pertains to the late filing fee applicable if a person required to file an Income Tax Return (ITR) under section 139(1) fails to do so within the specified time limit. The taxpayer must then deposit late fees when filing their ITR form.
The amount of late fee varies based on the taxpayer’s total income. It is important for taxpayers to file their ITR within the due date to avoid these penalties u/s 234F.
Who falls under the purview of Section 234F?
Section 234F of the Income Tax Act applies to the following entities:
Individuals
Companies
Firms
Hindu Undivided Families (HUFs)
Associations of Persons (AOPs)
Bodies of Individuals (BOIs)
Local Authorities
Every Artificial Judicial Person not covered above
If any of these entities fail to file their Income Tax Return (ITR) within the prescribed time limit under section 139(1) of the Income Tax Act, they will be liable to pay late filing fees as per Section 234F. Thus, it is crucial for all these entities to ensure timely submission of their ITR to avoid penalties.
Fees for Late Filing of ITR u/s 234F
The quantum of the fees depends on the Taxable income of the taxpayer.
Let’s take an example to understand it better:
In the case of Akash, a salaried individual who forgot to file his Income Tax Return (ITR) for the financial year 2022-23, the following applies:
Total Income: Akash’s total income for the year is INR 7,20,000.
TDS Deducted: His employer has already deducted TDS (Tax Deducted at Source) from his salary income.
Late Filing: Akash filed his ITR on 31st October 2023, missing the original due date of 31st July 2023.
As per Section 234F of the Income Tax Act:
Since Akash’s total income exceeds INR 5,00,000, he is liable to pay a late filing fee. The late filing fee under Section 234F, when filing after the due date but before 31st December of the assessment year, is INR 5,000. Therefore, despite TDS being deducted from his income, Akash will be penalized with a late filing fee of INR 5,000 for filing his return after the due date.
How to Pay Fees u/s 234F?
Taxpayers can pay the late filing fees from the IT Portal
Select the type of payment as “Self-Assessment (300)” and enter the late filing fees amount in the “Others” column (taken as ₹5000 based on the example above) as can be seen below.
After successfully completing the tax payment, a challan receipt will be generated containing all necessary details. When filing the return, it’s important to mention the BSR (Basic Statistical Return) code and the challan number from this receipt.
In cases where there is excess TDS deducted, taxpayers can utilize this surplus to offset the late filing fees under Section 234F. This adjustment helps in reducing the penalty amount effectively.
Important Keyword: Form 26AS, IFOS, Income Source, Income Tax Filing.
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ITR Documents:Income from Other Sources (IFOS)
Income from Other Sources (IFOS) includes any income that is not taxed under the following heads:
Salary Income
Business and Profession Income
Capital Gains Income
House Property Income
Types of Income Included in IFOS
Bank Interest: Interest earned from savings accounts, fixed deposits, and recurring deposits.
Investment Interest: Interest from bonds, debentures, and other investments.
Dividend Income: Dividends received from shares or mutual funds.
Family Pension: Pension received by family members after the death of the pensioner.
Gifts: Monetary gifts or valuable assets received, subject to certain conditions.
Royalties: Income earned from intellectual property like patents, copyrights, or trademarks.
These various sources of income fall under IFOS and are subject to specific tax rules and regulations.
Document Checklist for Income from Other Sources (IFOS)
1. PAN (Permanent Account Number)
Issued by the Income Tax Department (ITD), PAN is an alphanumeric ID essential for taxpayers.
PAN links all transactions of a person to their income and is crucial for filing Income Tax Returns (ITR).
2. Aadhaar
Aadhaar is a 12-digit unique identification number issued by the Unique Identification Authority of India (UIDAI).
It is mandatory for resident individuals to provide their Aadhaar details when filing ITR.
3. Form 26AS
Form 26AS is a consolidated Tax Credit Statement containing the following details:
Details of TDS (Tax Deducted at Source): Information on TDS from the taxpayer’s income.
Details of TCS (Tax Collected at Source): Information on TCS from the taxpayer’s payments.
Advance Tax and Self-Assessment Tax: Payments made by taxpayers.
Refunds: Details of any refunds received during the year.
High-Value Transactions: Information on significant transactions, such as investments in shares and mutual funds.
Proofs for Investment Deductions
When filing your Income Tax Return (ITR), you can claim deductions for certain investments and expenses. To do this, you need to provide proofs of these investments, such as donation receipts, fixed deposit statements, and other relevant documents. These investment proofs are crucial as they help reduce your overall taxable income under Chapter VI-A deductions.
Importance of Bank Statements
A bank statement that includes Income from Other Sources (IFOS) transactions is essential for preparing your ITR. By examining your bank statements, you can determine the total income earned from various sources like interest, dividends, gifts, and more. This information is vital for accurately reporting your income and claiming the appropriate deductions.
Important Keyword: Income Tax, Income Tax Filing, ITR Status.
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Types of ITR Status
Once you have filed and verified your Income Tax Return (ITR), it is important to regularly check its status to ensure that it has been accepted and processed. You can easily check the status of your ITR by logging in to your income tax account.
Types of ITR Status
Once you have filed your Income Tax Return (ITR), it’s important to monitor its status to ensure it is being processed correctly. Here are the different statuses you might encounter and what they mean:
Submitted and Pending for e-Verification:
Meaning: This status appears when you have filed your ITR but have not e-verified it. It can also mean you manually verified it and sent the acknowledgment to the department, but it has not been received yet.
Action Required: E-verify your return as soon as possible, or ensure that the manual verification acknowledgment reaches the department.
Successfully e-Verified:
Meaning: Your return has been submitted and duly verified. However, the processing of the ITR is still pending.
Action Required: No immediate action is needed. Just wait for the department to process your return.
Processed:
Meaning: Your return has been successfully processed by the department without any discrepancies.
Action Required: No further action is required from your end.
Defective:
Meaning: The return is defective if it hasn’t been filed in accordance with the provisions of the law. You will receive a notice under section 139(9) to rectify the defect within 15 days of receiving the notice.
Action Required: Respond to the notice and rectify the defect within the specified time. If you do not respond, your ITR will be treated as invalid.
Case Transferred to Assessing Officer:
Meaning: The Centralized Processing Centre (CPC) has transferred your ITR to the jurisdictional Assessing Officer (AO) for further processing. This usually happens in cases involving complexities that require human intervention.
Action Required: Wait for communication from the Assessing Officer. Be prepared to provide any necessary evidence or documents to support your claims.
Steps to check ITR Status
Without the Login Credentials
Income Tax Return Status Visit the e-filing portal and scroll down and click on the option Income Tax Return Status option.
Enter required details On the next screen, enter the acknowledgement number and a valid mobile number and click on continue.
Enter OTP Next, enter the 6 digit OTP you receive on the mobile number.
ITR Status On successful validation, you will be able to view the status of your ITR.
With Login Credentials
Login to the e-Filing portal using your login credentials.
Click e-File > Income Tax Returns > View Filed Returns
On the View Filed Returns page, you will be able to view all the returns filed by you. You will be able to download ITR-V Acknowledgement, uploaded JSON (from the offline utility), complete ITR form in PDF, and intimation order (by using the options on the right-hand side).
Click View Details to view the life cycle of the return and action items related to it (e.g., returns pending for e-Verification).
