Section 234A: Interest Penalty on Delayed ITR Filing

Types of Interest Under Section 234

There are 3 different types of interest under section 234 -

• Section 234A - Delay in Filing of ITR
• Section 234B - Delay in payment of advance tax
• Section 234C - Deferred payment of advance tax

What is Section 234A of Income Tax Act?

Section 234A of the Income Tax Act in India deals with the interest payable by taxpayers for the delay in filing income tax returns. This section primarily pertains to the payment of interest on the amount of tax that remains unpaid or is not paid within the specified due date for filing income tax returns.

Here are the key points regarding Section 234A:

• Delayed Filing: If an individual or entity fails to file their income tax return by the due date specified by the Income Tax Act, they might be liable to pay interest under Section 234A.
• Interest Calculation: The interest is calculated at a simple interest rate of 1% per month or part of a month for the period of delay. The interest is calculated on the amount of tax that remains unpaid.
• Applicability: Section 234A of Income Tax Act is applicable to cases where there's a delay in filing income tax returns and there's a tax payable by the taxpayer.
• Exceptions: If there's no tax liability or if the taxpayer has paid all the taxes before the due date, Section 234A might not be applicable. However, it's crucial to file the returns on time, even if there's no tax liability to avoid potential penalties and complications.
• Penalties: Apart from interest under Section 234A of Income Tax Act, there could also be penalties for delayed filing or non-filing of income tax returns. These penalties could vary based on the specific circumstances.

What Comes Under Section 234?

The cases for which taxpayers can be penalized under this section are known as default in furnishing income. These are:

• If he or she does not pay tax on time.
• If the individual does not provide for FORM 16 to the current employer after the change of the company.
• If the taxpayer fails to comply with the taxation rules.

For all these failures, individuals have to pay interests that are charged in three heads, i.e

Section 234A Delay in Filing of Income Tax Return
Section 234B Delay in making payment of Advance Tax
Section 234C Deferred Payment of Advance Tax

Concept of Section 234A

As per the Income Tax Act, taxpayers are required to file their ITR by the specified due date for filing ITR. If you fail to do so within the given time period, you might have to pay interest. If you miss the due date or fail to file the return, you might be in either of the following situations -

• You are eligible for an income tax refund from the IT department.
• You have paid your taxes on time and do not expect any refund or have any taxes payable.
• You are eligible for a tax refund from the Income Tax Department.
• You have outstanding taxes that need to be paid to the Income Tax Department.

In the above 2 cases, you don’t need to worry much about late ITR filing, but in the third case, if you have not filed your ITR by the due date, the income tax department might impose 1% interest on the unpaid tax amount per month or part of the month.

Let’s understand this with the help of an example -

If your total tax due for the financial year 2023-24 is Rs 1 lakh (after accounting for advance tax and TDS, if any) and you file your return on December 31, 2024, instead of the due date of July 31, 2024, you will be five months late.

You will incur an interest charge of Rs 5,000, calculated as Rs 1 lakh x 1% x 5 months. This Rs 5,000 is an additional amount on top of the tax you owe.

Interest Payable in Section 234A

In the case of delay in filing an Income tax return (ITR), the taxpayer has to pay interest @ 1% per month. This amount is calculated on the tax sum that is outstanding. The individual has to pay interest from the first date (after the due date) till the date on which the income tax return is filed. For this also, there are two cases:

• a. If the taxpayer has not claimed his or her tax refund.

  
  In this case, the taxpayer has to pay the interest on the total outstanding tax amount.
  For Example:

  Mr. Viraj has to file his income tax return by 31st July 2018 but delayed and filed his ITR in February for the financial year 2017-18. His outstanding tax amount is Rs. 2.5 lakh. Mr Viraj delayed his ITR for 7 months( August, September, October, November, Dcember, January, February) ( part of a month is rounded off) and if assumed he had not claimed his tax refund, he will be liable to pay interest as a penalty.
  Interest to be paid will be = 250000*1%*7 =17500

  Under section 234A of Income Tax Act Mr. Viraj is liable to pay Rs 17500 as a penalty in the form of interest levied @1% for the months delayed.

• b. If the taxpayer has claimed his or her tax refund.

  
  

  In case if the taxpayer claimed a tax refund even if he or she has failed to file his income tax return on time, the interest will be charged on the net amount outstanding for him or her. This will be calculated as total outstanding tax amount minus the tax refund.

  For example: Mr. Tarun is eligible and claims a tax refund of Rs. 40000 while filing his ITR in February 2019. The outstanding amount of tax to be paid is Rs. 150000. The penal interest will be charged on the net value obtained after adjusting the tax refund from the outstanding amount. The net outstanding tax amount = 150000-40000= 110000. Hence, the interest to be paid by him will be = 110000*1%*7= 7700

Few Terminologies Related to Section 234A

• Income Tax Return (ITR)
  This is a form in which the taxpayer has to file all the information related to taxation. This includes all the incomes of the assessee, taxes to be paid and so on.
• Outstanding tax amount
  This is the total sum that is outstanding on the taxpayer and is to be paid by the assessee.
• Penal interest
  This interest is the amount that is penalized on the taxpayer for the delay in the filing of an Income Tax Return.
• Due date
  This is the date of the financial year till when the Income Tax Return has to be filed by the individual. This is specified under the section 139(1) of the Act.

Conclusion

If you fail to file your ITR on time, it might lead to penalties under section 234A. So, if there is a delay in filing your return, get ready to pay extra in the form of penal interest. An interest @1% is levied on delay in ITR filing. The return should be filed before 31st July of the financial year you have to pay the income tax.

ITR filing for FY 2023-24 is ongoing, and the last date to file ITR is 31st July 2024. If you want to maximize your refunds and avoid penalties and interest, it is best to consult a tax professional who will not only help you file your ITR but also optimize your taxes so that you can keep more of what you earn and avoid penalties and notices Hire an online CA now!