Not complying with Income Tax regulations often comes with strict repercussions. You will have to pay Interest based on the Section 234 of the Income Tax Act.
- Default in filing of Tax Returns – Section 234A
- Default in payment of Advance Tax – Section 234B
- Deferment of Advance Tax– Section 234C
ClearTax will walk you through the interest and the calculations in a 3 part series.
Part I: Section 234 A
(Interest for Default in Filing your Tax Return)
Income Tax Returns for a financial year need to be filed within the time limit prescribed for each year for you. Your failure to file a return within this prescribed time or not file at all will attract this Interest. Use ClearTax to e-File if you haven’t e-Filed yet.
Now, when you do not file your returns or miss the due date, you could be in one of these 3 distinct positions:
- You have taxes outstanding to be paid to the IT department
- You are eligible for a tax refund from the IT department
- Your taxes have been perfectly paid with no refund expected or taxes payable.
If you fall into buckets “2” or “3”, you do not have to worry too much about late filing of your tax returns as interest may not be applicable in these two scenarios. However, your Assessing Officer may still choose to charge some interest, this has been left to his discretion.
If you have unpaid taxes that are outstanding and you have not filed your returns by the due date, you are in for trouble.
You will be charged an interest amount of 1% per month (simple interest) on the tax amount outstanding. This interest will be calculated from the due date applicable to you for filing of return of the applicable year till the date that you actually file your return.
Let’s say that your total tax outstanding is Rs 1,00,000 (net of advance tax paid & TDS if any) and you file your return on the 15th December instead of 31st July of the assessment year, when you were actually supposed to file your return. You are now 5 months late in your tax payments. (The 15 day period in December is treated as a month).
Interest = 100,000 x 1% x 5 = Rs. 5,000
This Rs. 5,000 is over and above the tax amount that you will be paying in any case.
If you do not file your return at all, you will have to pay 1% interest till the end of the assessment year i.e. 31st March. In the example above, your liability would be 8% of Rs. 1,00,000 which is Rs 8,000.