Section 234A of Income Tax Act

The income tax act specifically provides for the due date of filing an income tax return for each taxpayer. A non-compliance with the rules and provisions of the income tax act leads to penalties and interests. It is always in the best interest of the taxpayer to fulfill all their tax-related commitments before the due dates. 

Section 234A of the income tax act provides for levy of interest against delay in filing the income tax return. The applicable interest rate is 1% per month or part of the month on the amount of tax payable by the taxpayer.

Types Of Interest Under The Income Tax Act

Broadly speaking there are the following 4 types of interest levied on a taxpayer for a default:

1. Section 234A – Interest due to delay in filing of income tax return
2. Section 234B –  Interest due to delay in payment of the advance tax
3. Section 234C –  Interest due to deferment in payment of the advance tax

In this article, we will cover interest under section 234A along with illustrations on the same.

Section 234A Of Income Tax Act

When a taxpayer does not file the income tax return within the due date, then interest under section 234A is applicable to the taxpayer. In other words, if a taxpayer file ITR after the due date of filing a return, he/ she will have to pay interest. 

Now, even if you file your income tax return after the due date of filing, you will fall under any of the following situations:

1. You have an outstanding tax amount payable to the income tax department
2. You are eligible for a tax refund
3. You have no outstanding tax payable and no refund receivable from the income tax department

The interest payable on account of delay depends on the situations mentioned above. 

Rate Of Interest Under Section 234A Of Income Tax Act

Interest under section 234A is levied for delay in filing of an income tax return. Interest at the rate of 1% per month or part of the month is applicable. The nature of interest payable is simple interest. 

Period of Levy of Interest Under Section 234A 

Interest under section 234A is levied from the period commencing on the date immediately following the due date of filing the return of income. Interest is levied till the date of furnishing the return of income. In the case where no return has been furnished by the assessee then the interest is levied till the date of completion of the assessment under section 144.

It should be noted that while computing the period of levy of interest, part i.e. fraction of a month is considered as a full month. 

For Example:

Mr. Arun is an individual taxpayer. The due date for filing an income tax return is 31st July. But he files his tax return on 17th October. The tax payable was Rs 10,400. He pays the tax of Rs 10,400 as well on 17th October 

The due date of filing the return of income is 31st July 2020, and return of income is filed on 17th October which is after the due date. Mr. Arun will be liable to pay interest under section 234A. While computing interest, part of the month will be taken as a full month. In this case, there is a delay of 2 months and 17 days. Part of the month i.e. 19 days will be considered as a full month and hence, interest will be applicable for 3 months.

Amount of Interest Under Section 234A Of Income Tax Act

Interest is levied on the amount of tax payable by the taxpayer after deducting any advance tax, TDS/ TCS, or self-assessment tax paid by the taxpayer. 

For Example:

Mr. Arun is an individual taxpayer. The due date for filing an income tax return is 31st July. But he files his tax return on 3rd December. The tax liability of Mr. Arun for the financial year is Rs 23,000. He had paid an advance tax of Rs 15,000. He has a TDS credit of Rs. 3,000

Mr. Arun has filed his return of income after the due date i.e. after 31st July and hence, he will be liable to pay interest under section 234A. Interest will be levied at 1% per month or part of the month. 

The due date of filing the return of income is 31st July and the return of income is filed on 3rd December. Hence, there is a delay of 4 months and 3 days. Part of the month i.e. 3 days will be considered as a full month and hence, interest will be charged for a period of 5 months. Interest will be levied at 1% per month on Rs. 5,000 (*) for 5 months. Thus, interest under section 234A will come to Rs. 250

An advance tax of Rs. 15,000 and TDS of Rs. 3,000 are to be deducted from the tax liability of Rs. 25,000. Hence the net liability after deducting advance tax and TDS will come to Rs. 5,000. Thus, interest will be levied on Rs. 5,000.

Due Date of filing ITR for FY 2019-20 and AY 2020-21

Taxpayer	Due Date
Individual	31st December 2020
Body of Individuals (BOI)	31 December 2020
Hindu Undivided Family (HUF)	31 December 2020
Association of Persons (AOP)	31 December 2020
Businesses (Requiring Audit)	31 January 2021
Businesses (Requiring TP Report)	31 January 2021

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