Income tax is the tax levied by the government on the income earned by individuals, companies, and other entities. In India, the Income Tax Act, 1961 governs the provisions related to income tax. Under this act, the taxpayers are required to pay the tax on their income earned during the financial year. In case a taxpayer fails to pay the tax within the due date, interest is levied under section 234A of the Income Tax Act.
What is Section 234A? Section 234A of the Income Tax Act, 1961 deals with the interest levied in case of delayed filing or non-filing of income tax return. The section states that if a taxpayer fails to file the income tax return within the due date, interest at the rate of 1% per month or part of the month is levied on the outstanding tax liability.
Calculation of Interest u/s 234A: The interest under section 234A is calculated from the due date of filing the income tax return till the date on which the return is filed. The interest is calculated as follows:
Interest = Outstanding Tax Liability x 1% x Number of Months of Delay
Let’s understand this with an example:
Suppose Mr. X has a tax liability of Rs. 1,00,000 for the financial year 2021-22. The due date for filing the income tax return for FY 2021-22 is 31st July 2022. However, Mr. X fails to file the income tax return within the due date and files it on 30th September 2022. The interest under section 234A will be calculated as follows:
Outstanding Tax Liability = Rs. 1,00,000 Number of Months of Delay = 2 (August and September)
Interest = Rs. 1,00,000 x 1% x 2 = Rs. 2,000
Therefore, Mr. X will have to pay Rs. 2,000 as interest under section 234A.
Important points to remember:
The interest under section 234A is calculated on the outstanding tax liability. It is not calculated on the total tax liability.
The interest is calculated for every month or part of the month for which the return is delayed.
The interest under section 234A is levied only in case of delayed filing or non-filing of income tax return. It is not applicable in case of delayed payment of tax.
The interest under section 234A is payable even if there is no tax payable or the tax liability has been fully paid before the due date of filing the income tax return.
Conclusion: It is important for taxpayers to file their income tax return within the due date to avoid the interest under section 234A. The interest can add up to a significant amount if the return is delayed for a long period of time. Therefore, it is advisable for taxpayers to file their income tax return on time to avoid any unnecessary interest and penalty.