Maintaining your income tax payments requires careful tax planning. However, if you don't plan ahead of time, you risk missing or delaying your income tax payment. Section 234 of the Income Tax Act of 1961 determines the calculation of interest and penalties for late payments of income tax. Let's examine them in greater detail at them.

Section 234 defines three types of interest:

Section 234A: Interest for delay in Return Filing

Section 234B: Interest for delay in Advance Tax

Section 234C: Interest for deferment of Advance Tax Instalments

We will discuss about Interest under Sections 234A, 234B, and 234C in this article.

The calculation for the interest penalty under Sections 234A, 234B, and 234C is as follows.

Advance Tax

Paying your payable tax amount in quarterly instalments on the due dates set by the income tax department is what advance tax is all about. If your tax liability in a financial year exceeds Rs. 10,000, you must pay advance tax.

Section 234A

Section 234A of the Income Tax Act governs the penalty for late filing of an income tax return. If a taxpayer files their income tax return after the due date specified by the authorities, interest will be levied under this section.

The IT Act provides for a 1% penalty on the amount of tax owed every month or part of a month. This interest is calculated from the due date to the date the income tax return is actually filed.

In accordance with Section 234A, interest accumulates from the day immediately after the income tax return is due until the day the return of income is furnished. The interest accumulates until the date the assessment under Section 144 is completed in cases where no return has been provided.

When filing an income tax return is delayed, interest must be paid on the total amount of tax, as determined under subsection (1) of section 143, and, in the case of a regular assessment, on the total amount of tax, as determined under regular assessment, as reduced by the amount of—

a) Any advance tax that was paid;

b) Any tax deducted at source;

c) Any permitted tax relief

Section 234B

Interest is levied under section 234B in the following two situations:

Ø    when the taxpayer fails to pay advance tax despite being liable to pay advance tax; or

Ø    when the taxpayer's advance tax payment is less than 90% of the assessed tax, on the amount by which the aforementioned advance tax paid falls short of the assessed tax

Interest is levied under 234B for not paying advance tax. The interest rate is 1% per month or part of a month. The required interest is simple interest. For the non-payment of advance tax, the taxpayer is liable to pay 1% simple interest per month or part of a month.

Interest is levied under section 234B from the first day of the assessment year (usually the first of April) until the date of income determination under section 143(1) or when a regular assessment is made. If the income is increased as a result of the assessment or re-computation, interest is charged on the difference from the first day of the assessment year until the date of assessment or re-computation.

Section 234C

Section 234C of the Income Tax Act specifies the rate of interest and the conditions for deferring advance tax payments. Everyone, including salaried taxpayers, is required to pay advance tax every quarter of the financial year.

In accordance with Section 234C, interest shall be imposed on taxpayers (other than those who opted for the presumptive taxation scheme under Section 44AD or Section 44ADA) who fail to pay an instalment of advance tax.

Ø    If the advance tax paid by June 15th or earlier is less than 12% of the advance tax payable.

Ø    If the advance tax paid by September 15th or earlier is less than 36% of the advance tax payable.

Ø    If the advance tax payment made by the 15th of December or earlier is less than 75% of the advance tax payable.

Ø    If the amount of advance tax paid by the deadline of March 15 is less than 100% of the advance tax payable.

Interest at the rate of 1% is levied under Section 234C for a period of three months if the first, second, and third instalments are not paid on time, and for one month if the last instalment is not paid on time.

Conclusion

Sections 234A, 234B, and 234C apply to anyone who fails to make advance tax payments. In such cases, interest is charged up to the payment date. The department set a specific time frame and the percentage of the total amount to be paid until that date. If you do not pay that amount of advance tax by the due date, you will be charged interest at the rate of 1% per month on the amount that remains unpaid.