Bailabel Type : bailable
Description
Section 234 of the Income Tax Act, 1961 deals with the consequences of tax paid by deduction or advance payment, specifically in terms of interest charges due to failure to pay taxes in full or on time. It addresses the provisions related to interest charged on advance tax and TDS (Tax Deducted at Source) payments, as well as the failure to meet the required amount of advance tax.
Key Points of Section 234:
1. Overview of Interest for Underpayment or Non-Payment:
Section 234 primarily deals with the interest payable by the assessee if there is a failure to pay sufficient tax through advance payments or deductions at source, or if there is a delay in making these payments.
2. Subsections of Section 234:
Section 234 is divided into the following important subsections:
Subsection 234A - Interest for Delay in Filing Return of Income
- Application: This section applies when the assessee delays in filing the income tax return for a given assessment year.
- Interest Charged: If the return is filed after the due date, interest is charged under Section 234A.
- Rate of Interest: The rate is 1% per month or part of a month on the amount of tax payable for the period of delay.
- Calculation: The interest is charged from the due date of filing the return until the date the return is actually filed.
Subsection 234B - Interest for Default in Payment of Advance Tax
- Application: Section 234B applies when the assessee has failed to pay the required amount of advance tax or has underpaid it. This is especially applicable when the tax payable exceeds ?10,000.
- Interest Charged: If the advance tax is not paid as per the schedule, interest will be charged under Section 234B.
- Rate of Interest: The interest charged is 1% per month or part of a month on the amount of the shortfall in the payment of advance tax.
- Period of Interest: The interest is charged from April 1 of the assessment year until the date of payment or assessment, whichever occurs first.
- Tax Not Paid by the Due Date: This provision applies when the assessee fails to pay or underpays the advance tax in the prescribed manner.
Subsection 234C - Interest for Underpayment of Advance Tax Installments
- Application: Section 234C applies when an assessee fails to pay advance tax in the prescribed installments. The tax must be paid in four installments throughout the year.
- Interest Charged: If an assessee pays less than the required amount in any installment, interest is charged under Section 234C.
- Rate of Interest: The interest charged is 1% per month or part of a month on the underpaid amount of tax for the specific installment.
- Installments:
- First installment: 15% of the tax liability is due on June 15.
- Second installment: 45% of the tax liability is due on September 15.
- Third installment: 75% of the tax liability is due on December 15.
- Fourth installment: 100% of the tax liability is due on March 15.
- Penalty for Underpayment: If the assessee pays less than the specified amounts by the due dates, interest will be charged for the shortfall in tax payments for that installment.
Key Points to Remember Regarding Section 234:
Interest Applies to Underpayment of Advance Tax: Section 234B and 234C are specifically related to the underpayment or failure to pay the required advance tax as prescribed under the Income Tax Act.
Interest for Delay in Filing: Section 234A deals with the interest charged for late filing of income tax returns, even if the tax was paid in full.
Interest is Charged on Shortfalls: Interest is calculated on the shortfall amount if the required advance tax is not paid as per the schedule or in full.
1% Interest per Month: The interest rate charged under Sections 234A, 234B, and 234C is typically 1% per month or part of a month, which accrues for the duration of the shortfall or delay.
No Interest if Full Payment is Made: If the assessee has paid the advance tax and filed the return on time, no interest will be charged under these provisions.
Punishment
Interest on Default: The interest under Sections 234A, 234B, and 234C is a financial charge, not a penalty, but it effectively serves to penalize the assessee for failing to pay taxes on time or in the correct amount.
Penalty for Non-Payment: If there is a willful attempt to evade taxes, the assessee may be subject to penalties under other provisions of the Income Tax Act (for example, Section 271).
