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You have to pay penalty if you don’t pay expected tax on time. Penalty is in form of interest(thankfully simple interest) on tax that you owe till you pay your tax. The penalty is charges under sections 234A , 234 B & 234 C. This article explains section 234A,234B ,234C in detail.How it is calculated and how it appears in Income Tax Return.

Overview of section 234A,234B,234C

You need to pay all your taxes due before filing income tax returns. These fall in two categories : Self Assessment Tax and Advance Tax

As per the Income Tax Act, if you have any outstanding tax payable at the end of a Financial Year (FY), you must pay the balance tax amount and file your income tax returns by July 31st of the corresponding Assessment Year (AY). This is called Self Assessment Tax.

You are also expected to estimate your tax liability and if your tax liability is more than 10,000 Rs you need to pay taxes at regular intervals (by 15th Sep,15th Dec and 15th Mar). As this had to be paid in advance even before filing of Income tax returns ,it is called as Advance Tax. It is optional and not mandatory. If you don’t pay Advance tax you will have to pay penalty in form of interest under section 234C & 234B. Our article Advance Tax:Details-What, How, Why explains why one should pay Advance tax.

Please note that tax payable should consider TDS so Tax Payable = Income Tax on total Income – Tax Deducted at Source.

Under section 234A, you are penalised only when the return is filed after the due date which is 31st of July of the AY. Ex: Due Date for Assessment Year 2016-2017 or Financial Year 2015-2016  was 5 Aug 2016. If you file your returns after due date, then under Section 234A you are liable to pay 1% simple interest per month on the balance tax payable, applicable from the month of August of the AY till the month return is filed.

Under section 234B, penalty arises when the total amount of advance tax paid along with the amount of TDS is less than 90% of the total tax liability. In such case interest is calculated at 1% per month of the amount of shortfall for time period from April to the month in which the return is filed.

Under Section 234C,  From FY 2016-17
For both individual and corporate taxpayers

Due Date Advance Tax Payable
On or before 15th June 15% of advance tax
On or before 15th September 45% of advance tax
On or before 15th December 75% of advance tax
On or before 15th March 100% of advance tax

For the first installment, the shortfall penalty is calculated for  @1% p.m.

Self Assessment or Advance Tax can be paid by filing a Tax Payment Challan, ITNS 280 Challan, at designated branches of banks empanelled with the Income Tax Department  or  through the Income Tax Dept / NSDL website.  Our article How to pay Challan 280 online? explains how to pay Challan 280 online

Advance Tax need not be paid by Senior Citizens so penalties under 234B & 234C do not apply to Senior Citizens. 

Income Tax Interest under section 234 C

Section 234C is applicable if you don’t pay your advance taxes in regular installments.   Section 234C mandates periodic payment of tax during the year, culminating in full payment of total tax due by the end of the Financial Year. As per this section, from FY 2016-17

  • By 15th June Upto 15% of advance tax
    By 15thSeptember Upto 45% of advance tax
    By 15thDecember Upto 75% of advance tax
    By 15thMarch Upto 100% of advance tax

Earlier i.e before FY 2016-17 the advance tax rates due dates were as follows

  • 30% of the total tax amount must be paid by September 15th of the FY
  • 60% by December 15th, and
  • 100% by March 15th of the FY

If there is a slippage in payment of tax, then you are liable to pay interest penalty under Section 234C as follows:

  • If the tax paid by you by 15th September of the FY is less than 30% of total tax payable for the entire year, then under Section 234C you are liable to pay simple interest of 1% per month for 3 months (i.e. total 3%) on the shortfall below 30%.
  • If tax paid by you by 15th December is less than 60% of total tax payable, again you need to pay 1% simple interest per month for 3 months on shortfall below 60%.
  • If tax paid by you by 15th March of FY is less than 100% of total tax payable, simple interest of 1% on outstanding amount needs to be paid.

Note that these three penalties must be calculated separately and added to arrive at the total interest penalty under Section 234C. Let’s see it through some examples.

Mr. Khushal is running a garments shop. Tax Liability of Mr. Khushal is Rs 45,500. He has paid advance tax as given below:

Rs. 8,000 on 15th June, Rs. 11,000 on 15th September,  Rs. 12,000 on 15th December,  Rs. 14,500 on 15th March.  Is he liable to pay interest under section 234C, if yes, then how much?

Any tax paid till 31st March will be treated as advance tax. Considering the above dates, the advance tax liability of Mr. Khushal at different installments will be as follows:

1) In first installment: Not less than 15% of tax payable should be paid by 15th June. The tax liability is Rs. 45,500 and 15% of 45,500 amounts to Rs. 6,825. Hence, he should pay Rs. 6,825 by 15thJune. He has paid Rs. 8,000, hence, there is no short payment in case of first installment.

2) In second installment: Not less than 45% of tax payable should be paid by 15thSeptember. Tax liability is Rs. 45,500 and 45% of 45,500 amounts to Rs. 20,475. Hence, he should pay Rs. 20,475 by 15th September. He has paid Rs. 8,000 on 15th June and Rs. 11,000 on 15th September (i.e. total of Rs. 19,000 is paid till 15thSeptember). There is short payment of Rs. 1,475 (i.e. Rs. 20,475 – Rs 19,000).

Though there is short payment of Rs. 1,475 but Mr. Khushal will not be liable to pay interest under section 234C because he has paid minimum of 36% of advance tax payable by 15th September. He has paid Rs. 19,000 till 15th September and 36% of 45,500 amounts to Rs. 16,380. Hence, no interest shall be levied in case of deferment of second installment.

3) In third installment: Not less than 75% of tax payable should be paid by 15th December. Tax liability is Rs. 45,500 and 75% of 45,500 amounts to Rs. 34,125. Hence, he should pay Rs. 34,125 by 15th December. He has paid Rs. 8,000 on 15th June, Rs. 11,000 on 15th September and Rs. 12,000 on 15th December (i.e. total of Rs. 31,000 is paid till 15thDecember). There is a short payment of Rs. 3,125 (i.e. Rs. 34,125 – Rs 31,000). Hence, he will be liable to pay interest under section 234C on account of short fall of Rs. 3,125 (*).

There is a short fall of Rs. 3,125 in case of third installment. Due to short fall in case of third installment, interest under section 234C will be levied. Interest will be levied at 1% per month or part of the month on the short paid amount of Rs. 3,100 (i.e. Rs. 3,125 rounded off to Rs. 3,100 as per Rule 119A). Interest will be levied for a period of 3 months. In other words, interest will be levied on Rs. 3,100 at 1% per month for 3 months. Interest under section 234C will come to Rs. 93.

4) In last installment: 100% of tax payable should be paid by 15th March. The total tax liability of Rs. 45,500 is paid by Mr. Khushal by 15th March (i.e. 8,000 on 15th June, Rs. 11,000 on15th September, Rs. 12,000 on 15th December and Rs 14,500 on 15th March). Hence, there is no short payment in case of last installment. Thus, Mr. Khushal will not be liable to pay interest under section 234C in case of last instalment.

NOTE: Section 234C penalty does not apply to unexpected income during a FY, such as income from lottery winnings, races, game shows, or any income that could not have been possibly anticipated in advance. Such income must be excluded while calculating the percentage taxes payable.

Interest under section 234 B

234 B will be applicable when total advance tax paid is less than  90 % Tax Payable.  This will be charged at 1% per month till you pay your remaining taxes. Let’s see the example:

Rajan has  estimated  his  total taxes payable as Rs.1,00,000 and he has paid 50,000 as advance Tax till March 31st 2014. He pays the balance in July while filing his income tax return. Let’s see how 234 B will be applied to him

# Particulars Rs.
1 Total Tax Payable 1,00,000
2 Advance Tax paid till March 31st 2017 50,000
3 Balance Tax Payable (as of March 31st 2017) 50,000
4 Interest @ 1% / Month on 50,000 500 / Month
5 234 B = (for 4 Months ( Apr – July) 4 * 500) 2000

If you pay your taxes in between April – July period then interest @1% will be applied only on the balance tax payable .

If in the last month, that is March, you delay payment of the last instalment by even a day, you will have to pay interest on the entire balance of Rs 5,000.It is suggested that the best strategy for paying advance tax should be to pay a little extra for first 2 installments and then paying amount close to the total tax liability during the third installment.
NOTE: Section 234B penalty is not applicable if the outstanding tax liability is less than 10% of the total tax payable for the relevant FY.

Interest under section 234A

Interest penalty for delay in filing income tax return if any tax is due comes under Section 234A.  As per the Income Tax Act, if you have any outstanding tax payable at the end of a Financial Year (FY), you must pay the balance tax amount and file your income tax returns by July 31st of the corresponding Assessment Year (AY). This is called Self Assessment Tax.

If you file your returns after due date, then under Section 234A you are liable to pay 1% simple interest per month on the balance tax payable, applicable from the month of August of the AY till the month of filing returns. Note Section 234A penalty is not applicable if you don’t have any balance tax payable

So, for example, if you have outstanding tax payable of Rs. 8,000 and you file your tax returns on 15 Oct, you will have to pay interest penalty of 3% (1% per month x 3 months) on the balance tax amount of Rs. 8,000, i.e. Rs. 240.

If you have outstanding tax payable more than Rs 10,000 in addition to interest under section 234A one also had to pay interest under section 234B. This also applies if you file your income before due date. Difference will be the number of months for which you did not pay the expected tax.

ITR and Interest under section 234A,234B and 234C

While filing Income Tax return one needs to show the taxes paid broken down as TDS, Advance Tax and Self Assessment Tax paid as shown in image below

Taxes paid in ITR : Self assessment Tax,TDS,Advance Tax

Taxes paid in ITR : Self assessment Tax,TDS,Advance Tax

Interest penalty under section 234A, 234B and 234C in ITR is shown in image below

 income tax penalty under section 234A,234B,234C

income tax penalty under section 234A 234B 234C

Information about taxes paid , TDS , Advance Tax should be verified in Form 26AS. Advance Tax or Self Assessment Tax paid matches Part C of Form 26AS as explained in What to Verify in Form 26AS? and shown in image below. Click on image to enlarge.

Form 26AS Self Assessment Tax/Advance Tax Payment

Form 26AS Self Assessment Tax/Advance Tax Payment

Penalty Interest Tax calculators under section 234A, 234B, 234C can be found at Finotax.

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Hope this article explained Section 234A,234B & 234C and how they are calculated. Please share your opinions,comments, feedback. Have you paid interest penalty under section 234A/234B/234C?

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