What is Section 234?
The income tax department has laid down strict guidelines on income tax rules and regulations to ensure strict compliance. In case a taxpayer fails to comply with tax regulations, he/she is liable to pay various penalties as a consequence. Section 234 under the Income Tax Act,1961 deals with penalties and penal interest rates that are charged on the taxpayer under various circumstances.
There are 3 types of interests which are charged on the taxpayer under the following circumstances:
Section 234A: Delay in Filing of Tax Return
Section234B: Delay in the Payment of Advance Tax
Section 234C: Deferred Payment of Advance Tax
It is the first part of a three-part series on section 234 where we shall discuss section 234A in detail.
Section 234A: Interest Payable on Delayed Filing of Tax Return
Are you running late in filing your income tax return? If yes, then you are liable to a pay penalty under the section 234A of the IT Act, 1961. The due date of submitting the income tax return of any financial year is on or before 31st July the following financial year. However, in case any taxpayer misses the due date and files the ITR later on then he is liable to pay interest at 1% per month on the outstanding tax amount. The interest must be paid from the first date after the due date till the date when the ITR is filed.
Mr. X has an outstanding tax amount of Rs. 1.5 lakhs for the FY 2017-18 but fails to file ITR by 31st July 2018 and actually files his ITR on 5th February 2019. This means that Mr. X has delayed the ITR submission by 7 months (part of a month is rounded off to full of a month). Assuming that Mr. X had not claimed a tax refund, he is liable to pay Rs.10,500 as a penalty levied at 1% per month on due tax under section 234A.
Interest Payable = 1,50,000 * 1% * 7 = 10,500
What happens in case of a claim of a tax refund?
In case you have not filed your ITR on the due date but you are eligible to claim a tax refund, then the penal interest charged under section 234A will be levied only on net tax amount outstanding after adjusting the tax refund.
Suppose, in the example mentioned above, Neil was eligible to claim a tax refund of Rs. 30,000 which he duly claims while filing his ITR in Feb 2019. Then the penal interest under section 234A will be charged only on adjusted tax amount outstanding i.e. 1,20,000. Hence the interest paid by Neil, in this case, would be Rs. 8400 (1,20,000*1%*7) only.
Apart from the penal interest charges applicable to late filings, other penalties may also be applicable.