Interest Penalties under IT Act

You all have been hearing a lot about filing income taxes, and if not filed on time then paying extra money on it…

When it comes to taxes, the government wants to make sure everyone pays their fair share. And if you happen to miss the due date for filing your ITR or paying your taxes, you are liable to pay some extra money in the form of interest penalties. Yep, sadly that’s right!
But don’t worry, here I’m to break it down for you in simple terms, so you’ll know exactly what to expect.

Filing returns after the due date: If the return is filed after the due date i.e. July 31, 2022, an interest penalty of 1% for the month or part thereof will be levied under section 234A on the amount of tax payable. Let’s say, you have a tax liability of ₹25,000 and you filed a return on December 20, 2022.

In this case, the interest of ₹1,250 (₹25,000*1%*5 months) will be levied for delay in filing the return.

Default in Advance Tax Payment: Interest is levied under section 234B in cases where you have not paid Advance tax or the advance tax paid is less than 90% of the tax liability at 1% for the month or part thereof.

For example, you have a tax liability of ₹60,000. You have not paid any advance tax and at the time of filing the return on July 15, 2022, you paid the entire tax liability.

Since you have not paid any advance tax, the interest of ₹2,400 (₹60,000*1%*4 months) will be levied.

Note: Interest u/s 234B is levied from April 1 of the next financial year.

Deferment in Advance Tax Payment: When the tax liability in a year is more than ₹10,000, you are required to make advance tax payments in installments. If you fail to make the payment for advance tax installment or the amount paid is short then under section 234C interest is levied at 1% for the month or part thereof.

For instance, you have a total tax liability of ₹40,000, and the advance tax installments paid are as under:

You might think that there is some outstanding demand in Q2 but there is no interest liability calculated. The reason is in the first and second quarters if the advance tax paid is 12% or 36% of the tax liability respectively then no interest will be levied.

Make sure to file returns and pay taxes on time to avoid interest penalties.

For further queries, comment below!!

Hello Madam,

I may be wrong, but shouldn’t the 234C interest calculation for Quarter 3 be Rs. 150 ? (ie: 5,000 * 1% * 3 months).

I also have following query:
Consider a case where total tax liability is Rs. 40,000. How is interest under section 234B calculated if taxpayer pays self-assessment tax of 20,000 on 25th March 2023, Rs. 10,000 on 25th April 2023 and balance 10,000 at the time of filing return on 25th May 2023 ?

I have attached an image for better clarity w.r.t above query.

Hello @radhesh23k,

Your calculation of the interest seems to be correct. My sincere apologies.

The interest under section 234B is calculated from 1st April of the next financial year on the outstanding tax liability. Interest of ₹200 (₹20,000* 1%* 1 month) will be levied on outstanding tax liability of ₹20,000 and ₹200 (₹10,000* 1%* 2 months) will be levied on outstanding tax liability of ₹10,000.

Hope this helps!

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