Failing in discipline of filing income tax return will be liable to you file additional penalties on the amount due. However, there are many of the issues that can result in failure of tax deposits. These issues can be related to individuals or companies. For companies, it can occur due to failure to deposit advance tax,late filing of tax returns or payment of tax which is less than the actual tax liability.
In case of individuals, if he does not deposit the tax at right time or does not provide for FORM 16 to current employer after change of his company, he will be liable for interest on tax payable. This is also known as default in furnishing the income. These penalties are slapped under section of 234A, 234B and 234C.
Section 234A: Evasion in Providing Return on Income
he IT Act has made provisions for a penalty of 1% every month on the amount of tax payable. This interest is calculated from the due date to the date of actually filing the income tax return.
For example, ABC has failed to file the tax return on tax payable of Rs 2,00,000, on stipulated date of 31st July 2013, and submits it on 2nd December 2013. The Simple interest due on the tax will be-
Tax Payable: Rs 200000
Delay in Payment of Tax from 31st July 2013: 5 months (August, September, October, November and December)
Penalty: 2,00,000 * 5% = Rs 10,000
Section 234B: Evasion in Paying Advance Tax
This penalty provision activates in two cases:
1. If the Assessee was liable to pay advance tax, but failed to deposit that.
2. If the amount deposited was less than 90% of the tax to be deposited.
In both the above cases, assessee will be levied a Simple Interest @ 1% per month. Please remember, if you deposited the advance tax which was more than 90% of the total tax, then no interest will be charged from you. This interest is chargeable from 1st April of the Assessment Year. It can also be charged from the initiation date of assessment year to the date of regular assessment completion. In calculation of 90% we will consider the amount of tax payable after TDS.
Consider this example:
The tax liability of the Individual Assessee was Rs 2,40,000 while TDS due was Rs 40,000.
Advance tax already paid was Rs 1,20,000.
Calculation of Interest:
Tax Liability was Rs 2,40,000, while TDS was Rs 40,000.
Tax Assessment: Rs 2,00,000 (2,40,000-40,000)
Now IT department assesses, whether partial payment comes under limit of 90%.
Rs 2,00,000* 90% = Rs 1,80,000
Therefore amount of Tax paid was less than amount due by Rs 60,000 (1,80,000-1,20,000).
The total interest due U/s. 234B will be: Rs 60,000 * 1%* 4 months (April-July) = Rs 2,400.
The interest is taken till July because which is the due date of payment for individual assesses and assumed as month of return filing.
Section 234C: Payment of Advance tax not in time.
The payment rates of Individual assessee are considered in this example:
Assessee Is Not Corporate
Due Date Amount due
On or before 15 September 30% of advance tax
On or before 15 December 60% of advance tax
On or before 15 March 100% of advance tax
Mr. Ratan is an assessee whose income tax computed was Rs 6,00,000
He paid the following advance tax:
10th Sep: Rs 30,000
15th Dec: Rs 50,000
9 March: Rs 25,000
Total = Rs 1,05,000
TDS= Rs 1,20,000
Tax Assessment: Rs 6,00,000- 1,20,000= Rs 4,80,000
Penalty on the Advance Tax is calculated on the basis of difference between actual amount paid and due.
30% of Rs 4,80,000 = 1,44,000, differential = 1,44,000- 30,000 = Rs 1,14,000
60% of 4,80,000 = 2,88,000, differential = 2,88,000- 80,000 = Rs 2,08,000
100% of 4,80,000 = 4,80,000, differential = 4,80,000-1,05,000 = Rs 3,75,000
Rs 1,14,000*1%*3 months = Rs 3,420
2,08,000*1%*3 months = Rs 6,240
3,75,000*1%*1 months = Rs 3,750
Total Penalty= Rs 13,410.
It is important to understand the penalties under Sec 234A, 234B and 234C when you are trying to keep away from tax evasion. It’s always better to keep you IT file clean and complete to avoid such interest penalties.