advance tax theTAXtalk Non-payment of attracts Interest

Non-payment of advance tax attracts Interest- Know about Section 234A, 234B & 234C

16th March 2018

advance tax

Income tax department is getting very serious with the liability of taxpayer for advance payment. There is likelihood that the survey and scrutiny will be taken up if the advance tax is not paid by the taxpayer.

Non Payment of advance tax attracts interest u/s 234A, 234B & 234C. Let us know the provision regarding levy of interest for non payment of advance tax.

Section 234A deals with the Interest liability for defaults in furnishing return of income, as under:

When the assessee made any default in respect of furnishing the return of income, interest is leviable as per the income tax act.

Interest is leviable as per the provision of Section 234A.Let us understand the applicability of section 234A in detail.

Section 234A provides that, (1) Where the return of income for any assessment year under sub-section (1) or sub-section (4) of section 139, or in response to a notice under sub-section (1) of section 142, is furnish after the due date, or is not furnish, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprise in the period commencing on the date immediately following the due date, and,—

(a) Where the return is furnishe after the due date, ending on the date of furnishing of the return; or

(b) Where no return has been furnished, ending on the date of completion of the assessment under section 144,

on the amount of the tax on the total income as determined under sub-section (1) of section 143, and where a regular assessment is made, on the amount of the tax on the total income determined under regular assessment, as reduced by the amount of,—

(i) Advance tax, if any, paid;

(ii) Any tax deducted or collected at source;

(iii) Any relief of tax allowed under section 90 on account of tax paid in a country outside India;

(iv) Any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section;

(v) Any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and

(vi) Any tax credit allowed to be set off in accordance with the provisions of section 115JAA or section 115JD.]

Explanation 1.—In this section, “due date” means the date specified in sub-section (1) of section 139 as applicable in the case of the assessee.

Explanation 2.—In this sub-section, “tax on the total income as determined under sub-section (1) of section 143” shall not include the additional income-tax, if any, payable under section 143.

Explanation 3.—Where, in relation to an assessment year, an assessment is made for the first time under section 147 or section 153A, the assessment so made shall be regarded as a regular assessment for the purposes of this section.

(2) The interest payable under sub-section (1) shall be reduced by the interest, if any, paid under section 140A towards the interest chargeable under this section.

(3) Where the return of income for any assessment year, required by a notice under section 148 or section 153A issued after the determination of income under sub-section (1) of section 143 or after the completion of an assessment under sub-section (3) of section 143 or section 144 or section 147, is furnished after the expiry of the time allowed under such notice, or is not furnished, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the day immediately following the expiry of the time allowed as aforesaid, and,—

(a) Where the return is furnished after the expiry of the time aforesaid, ending on the date of furnishing the return; or

(b) Where no return has been furnishe, ending on the date of completion of the reassessment or re-computation under section 147 or reassessment under section 153A,

on the amount by which the tax on the total income determine on the basis of such reassessment or re computation exceeds the tax on the total income determine under sub-section (1) of section 143 or on the basis of the earlier assessment aforesaid.

(4) Where as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount of tax on which interest was payable under sub-section (1) or sub-section (3) of this section has been increase or reduce, as the case may be, the interest shall be increase or reduce accordingly, and—

(i) in a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly;

(ii) In a case where the interest is reduced, the excess interest paid, if any, shall be refunded.

(5) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years.

Interest would not be applicable in a case where tax has been deposit prior to due date of filing of income. Even if return of income is file after the due date, section 234A would not be applicable here-CIT v. Pranoy Roy[2009] 179 taxman 53 (SC), the Mumbai bench of tribunal hold that it is not open to the assessing officer to charge interest under section 234A, where due taxes has paid and merely filing of income return is delay.

Thus, Section 234A can concluded by saying that, Interest would not be applicable in a case where tax has been deposit prior to due date of filing of income. Even if return of income is file after the due date, section 234A would not be applicable.

Section 234B deals with Interest for defaults in payment of advance tax.

Section 234B is applicable when the assessee made default in payment of advance tax liability. It has been further specified in this section, to whom this section is applied.

Let us understand the applicability of section 234B in detail:

Section 234B of the income tax Act provides that; (1) Subject to the other provisions of this section, where, in Any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax.

The assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprise in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is make, to the date of such regular assessment, on an amount equal to the assesse tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assesse tax.

Explanation 1.—In this section, “assesse tax” means the tax on the total income determine under sub-section (1) of section 143 and where a regular assessment is make, the tax on the total income determine under such regular assessment as reduce by the amount of,—

(i) Any tax deduct or collect at source in accordance with the provisions of Chapter XVII on Any income which is subject to such deduction or collection and which is take into account in computing such total income;

(ii) Any relief of tax allowed under section 90 on account of tax paid in a country outside India;

(iii) Any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section;

(iv) Any deduction, from the Indian income-tax payable, allow under section 91, on account of tax pay in a country outside India; and

(v) Any tax credit allow to be set off in accord with the provisions of section 115JAA or section 115JD.

Explanation 2.—Where, in relation to an assessment year, an assessment is make for the first time under section 147 or section 153A, the assessment so made shall be regrade as a regular assessment for the purposes of this section.

Explanation 3.—In Explanation 1 and in sub-section (3) “tax on the total income determine under sub-section (1) of section 143” shall not include the addition income-tax, if any, payable under section 143.

(2) Where, before the date of determine of total income under sub-section (1) of section 143 or completion of a regular assessment, tax is pay by the assessee under section 140A or otherwise,—

(i) interest shall be calculate in accordance with the foregoing provisions of this section up to the date on which the tax is so pay, and reduce by the interest, if Any, pay under section 140A towards the interest charge under this section;

(ii) Thereafter, interest shall be calculate at the rate aforesaid on the amount by which the tax so pay together with the advance tax pay falls short of the assesse tax.

[(2A) (a) where an application under sub-section (1) of section 245C for Any assessment year has been made, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the 1st day of April of such assessment year and ending on the date of making such application, on the additional amount of income-tax referred to in that sub-section;

(b) where as a result of an order of the Settlement Commission under sub-section (4) of section 245D for Any assessment year, the amount of total income disclosed in the application under sub-section-

(1) of section 245C is increased, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the 1st day of April of such assessment year and ending on the date of such order, on the amount by which the tax on the total income determined on the basis of such order exceeds the tax on the total income disclosed in the application filed under sub-section (1) of section 245C;

(c) where, as a result of an order under sub-section (6B) of section 245D, the amount on which interest was payable under clause (b) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly;]

[(3) where, as a result of an order of reassessment or recomputation under section 147 or section 153A, the amount on which interest was payable in respect of shortfall in payment of advance tax for Any financial year under sub-section (1) is increased, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised.

In the period commencing on the 1st day of April next following such financial year and ending on the date of the reassessment or re-computation under section 147 or section 153A, on the amount by which the tax on the total income determined on the basis of the reassessment or re-computation exceeds the tax on the total income determined under sub-section (1) of section 143 or on the basis of the regular assessment as referred to in sub-section (1), as the case may be;]

(4) where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, the amount on which interest was payable under sub-section (1) or sub-section (3) has been increase or reduce, as the case may be, the interest shall be increase or reduce accordingly, and—

(i) in a case where the interest is increase, the Assessing Officer shall serve on the assessee a notice of demand in the prescribe form specifying the sum payable and such notice of demand shall be deem to be a notice under section 156 and the provisions of this Act shall apply accordingly;

(ii) In a case where the interest is reduce, the excess interest pay, if any, shall be refunde;

(5) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989,

and subsequent assessment years.

INTEREST ON DEFAULT IN PAYMENT OF ADVANCE TAX U/S 234C

Section 234C– Interest payment in case of delay in the payment of advance tax.

Interest under section 234C is levied, if advance tax paid in any installment is less than the required amount.

Interest under section 234C in case of deferment of different installments of Advance Tax is levied in as under:

Also If Advance Tax is pay on or before 15th June is less than 12% of Assesse Tax
If Advance Tax is pay on or before 15th September is less than 36% of Assesse Tax
Also If Advance Tax is pay on or before 15th December is less than 75% of Assesse Tax
If Advance Tax is pay on or before 15th March is less than 100% of Assesse Tax

If the amount advance tax pay on or before March 15 is less than 100%, Simple interest @ 1% is chargeable for presumptive taxation.

Amount on which interest is payable=Tax on total income declare in the return file.

(Less) Total of Tax deducted/collected at source

If (Less) relief/deduction of tax under sec 90 or 91

(Less) relief of tax claimed under sec 90A

If (Less) Tax credit under sec 115JD

(Less) Amount of advance tax paid on or before

March 15 of the financial year immediately

Preceding the relevant assessment year.

Waiver or reduction of interest under section 234C

The interest under section 234C shall be reduce or waive by the chief commissioner/Director general subject to certain conditions are:

The relevant income is disclose in a return of income furnishe in the same Previous year or disclose to assessing officer.
Tax attributable to such income has been pay

The interest under section 234C shall be reduce or waive in respect of the period mentione in that section.

The quantum of interest to be reduce or waived shall be the difference between:

Interest computed for the period mentioned inclusive of the relevant income
Interest computed for the same period with reference to the tax on the total income as reduced by the relevant income.

234C. (1) Where in any financial year,—

[(a) An assessee, other than [the assessee referred to in clause (b)], who is liable to pay advance tax under section 28 has failed to pay such tax or—

(i) the advance tax paid by such assessee on its current income on or before the 15th day of June is less than fifteen per cent of the tax due on the return income or the amount of such advance tax pay on or before the 15th day of September is less than forty-five per cent of the tax due on the return income or the amount of such advance tax paid on or before the 15th day of December is less than seventy-five per cent of the tax due on the return income.

Then, the assessee shall be liable to pay simple interest at the rate of one per cent per month for a period of three months on the amount.

The shortfall from fifteen per cent or forty-five per cent or seventy-five per cent, as the case may be, of the tax due on the returned income;

(ii) the advance tax paid by the assessee on the current income on or before the 15th day of March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent on the amount of the shortfall from the tax due on the returned income:

Provided that if the advance tax paid by the assessee on the current income, on or before the 15th day of June or the 15th day of September, is not less than twelve per cent or, as the case may be, thirty-six per cent of the tax due on the returned income, then, the assessee shall not be liable to pay any interest on the amount of the shortfall on those dates;]

(b) [an assessee who declares profits and gains in accordance with the provisions of sub-section (1) of section 44AD or sub-section (1) of section 44ADA as the case may be].

Who is liable to pay advance tax under section 208 has failed to pay such tax or the advance tax paid by the assessee on its current income on or before the 15th day of March is less than the tax due on the returned income.

Then, the assessee shall be liable to pay simple interest at the rate of one per cent on the amount of the shortfall from the tax due on the returned income:]]

Provided that nothing contained in this sub-section shall apply to any shortfall in the payment of the tax due on the returned income.

Where such shortfall is on account of under-estimate or failure to estimate—

(a) The amount of capital gains; or

(b) Income of the nature referred to in sub-clause (ix) of clause (24) of section 2[or]

[(c) Income under the head “Profits and gains of business or profession” in cases where the income accrues or arises under the said head for the [first time; or]]

[(d) income of the nature referred to in sub-section (1) of section 115BBDA,]

and the assessee has paid the whole of the amount of tax payable in respect of income referred to in clause (a) or clause (b) [or clause (c) [or clause (d)]], as the case may be, had such income been a part of the total income, as part of the remaining installments of advance tax which are due or where no such installments are due, by the 31st day of March of the financial year: