What is rule 119A of income tax?
Rule 119A of the Income Tax Rules, 1962 deals with how interest is calculated on income tax.
The interest is to be computed in the following manner:
- Where interest is to be calculated on an annual/yearly basis, the period shall be rounded off to a whole month, and any part/fraction of the month shall be ignored.
- Where the interest is to be calculated for every month or part of a month (not in terms of years), and any fraction of a month shall be deemed to be a full month.
- The amount of interest calculated shall be rounded off in multiples of hundred, and for this purpose, any fraction of one hundred rupees shall be ignored.
To understand it even more properly, let's take an example. Suppose you have to compute interest on Rs. 5,455/—for two months and seven days, as per the rules. 55 shall be ignored, and the 7-day period shall be taken as 1 month. Therefore, your interest would be calculated at Rs. 5,400 for three months.
Interest for delay in return filing under Section 234A
Interest u/s 234A of the Income Tax Act is payable if you file your income tax return after the due date specified. Interest will be levied at 1% per month or part of a month from the period starting on the date immediately following the due date of filing the return and ending on the date of actually filing the return.
Or, in cases where no return has been filed, on the date the assessment is completed under Section 144.
For example, your tax liability for the financial year 2017-18 amounts to Rs. 9,500, the due date of filing the return of income is 31.07.2018, and you file your return on 30.08.2018, then you will be liable to pay interest of Rs. 95 (i.e., Interest @ 1% on Rs. 9,500 for 1 month) u/s 234A.
Amount liable to interest under section 234A
Interest under Section 234A is charged on the tax amount determined under Section 143(1). In cases of regular assessment, it is levied on the tax determined on total income after deducting advance tax, TDS/TCS, relief under Sections 89, 90, 90A, 91, and tax credit under Sections 115JAA/115JD.
Note: To minimize any interest charges, it's best to file your return as soon as possible, even if you have outstanding tax to pay.
Interest for default in payment of advance tax under Section 234B
Interest, as per section 234B of the Income Tax Act, is payable if you fail to pay advance tax or if you pay advance tax, which is less than 90% of your total tax liability. Interest will be levied at 1% per month or part of a month from 1st April till the date of actual determination of income.
The amount on which interest shall be charged will be the amount of unpaid/short-paid advance tax (i.e., Total assessed tax advance tax paid – TDS, etc).
For example, if your tax liability for the financial year 2017-18 amounts to Rs. 55,500 and you have paid an advance tax of Rs. 50,000 (which is more than 90% of the total tax), then no interest u/s 234B shall be levied on you.
Amount liable for interest
Interest under Section 234B is charged on the unpaid amount of advance tax. If there is a shortfall in the payment of advance tax, interest is levied on the amount of the shortfall.
Note: To avoid interest charges, ensure you pay at least 90% of your estimated tax liability through advance tax installments throughout the financial year.
Interest for default in payment of installments of advance tax under Section 234C
Section 234C of Income Tax Act specifically addresses interest for delays in paying individual installments of advance tax. The conditions for interest u/s 234C are discussed below.
| Condition |
Interest Calculation |
| 1. Advance tax paid is less than 12% of Tax due on returned income on or before 15th June. |
The difference between 15% of Tax due on returned income and advance tax paid till 15th June will be considered. |
| 2. Advance tax paid is less than 36% of Tax due on returned income on or before 15th September. |
The difference between 45% of Tax due on returned income and advance tax paid till 15th September will be considered. |
| 3. Advance tax paid is less than 75% of Tax due on returned income on or before 15th December. |
The difference between 75% of Tax due on returned income and advance tax paid till 15th December will be considered. |
| 4. Advance tax paid is less than 100% of Tax due on returned income on or before 15th March. |
The difference between 100% of Tax due on returned income and advance tax paid till 15th March will be considered. |
Interest shall be levied at 1% per month or part of a month for a period of 3 months in cases (a), (b), and (c) above and for 1 month in case (d) above.
Now, suppose you have to file your return on 10.12.2018 against the due date of 31.07.2018. Your tax liability is Rs. 30,000/- out of which Rs. 25,000 has been paid as advance tax by you.
The advance tax paid is paid as follows:
| Rs. 5,000 |
before 15th June |
| Rs. 10,000 |
before 15th September |
| Rs. 25,000 |
before 15th December |
Exemption from Interest under Section 234C
Interest under Section 234C is not applicable if the shortfall in the payment of advance tax arises due to an inability to estimate specific incomes. These include capital gains, winnings from lotteries or crossword puzzles (as defined under Section 2(24)(ix)), income from a newly established business, or dividend income exceeding ₹10,00,000 under Section 115BBDA. To avoid interest, the taxpayer must pay the required advance tax on such income either as part of the next immediate installments or by 31st March if no installment remains pending.
Table summarizing how Interest shall be calculated under Sections 234A, 234B, and 234C
| U/s 234A |
@ 1% for five months on Rs. 5,000 (Rs. 30,000 - Rs. 25,000), which shall come to Rs. 250/- |
| U/s 234B |
@ 1% for nine months (i.e., from 1st April to 10th December) on Rs. 5000 which shall come to Rs. 450/-.
It is important to note here that if the advance tax paid was more than Rs. 27,000/- i.e., more than 90% of the total tax, no interest would have been payable. |
| U/s 234C |
Let's suppose that the balance income tax of Rs. 5000 was also paid by 15th March.
Therefore, the interest is payable only on the second installment as the amount of Rs. 10,000 is less than 36%, i.e., Rs. 10,800.
The amount of interest shall be Rs. 105 u/s 234 C {i.e. 1% interest on Rs. 3500(13,500-10,000) for 3 months}. |
We hope this information has increased your awareness of Sections 234A, 234B, and 234C. We encourage you to file your ITR within the due date to avoid any interest charges. However, if you are liable to pay interest under these sections, we trust you will calculate them correctly, and if you need assistance while calculating and e-filing your taxes, Book eCA here.
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