Personal Finance

When interest u/s 234 A, B, C can be levied by the taxman

Keerthi Sanagasetti BL Research Bureau | Updated on September 25, 2021

Unpaid dues can hurt during ITR filing

A coffee time conversation between two colleagues leads to an interesting explainer on tax jargons.

Vina: Thank God, the due date to file our tax returns has been extended up to December 31, 2021. I can now shift my focus on other things, instead of racing to finish this annual obligation.

Tina: True that. But I hope your tax dues for 2020-21 which you have left unpaid, are less than ₹1 lakh?

Vina: That calculation I am yet to do. What’s so special about this ₹1 lakh limit?

Tina: The extension in return filing date does not apply to those who have an unpaid tax liability of more than ₹1 lakh.

Unpaid tax liability here implies one’s tax liability in a year, reduced by advance tax instalments paid, any tax collected or deducted at source, any relief of tax allowed under sections 89, 90, 90 A or 91, or any alternate minimum tax credit allowed to be set off under the IT Act.

Thus, the due date of filing returns for whom the unpaid tax liability exceeds ₹1 lakh, is still July 31, 2021.

Interest at the rate of one per cent per month is levied on your unpaid tax amount, under section 234 A of the Act if tax returns are not filed by the due dates.

Vina: What? So, by not furnishing returns by July 31, 2021, I am liable to pay interest at the rate of one per cent on my tax liability for every month since July 31?

Tina : Yes. But if you have outstanding tax of less than ₹1 lakh, this provision will not be applicable.

Vina: Let me hurry up and check where I stand.

Tina : But wait... Whether your return filing date is July 31 or December 31 this year, you also need to check if interest under sections 234 B and 234 C are applicable.

Vina: Oh, what do these ask for ? More tax, am sure!

Tina : You are partly right. If your tax liability after TDS in any financial year amounts to ₹10,000 or more, then you need to pay advance tax in four instalments during the course of the financial year itself.

Vina: And, if I’ve completely missed this...what happens?

Tina: You will be required to pay interest on any shortfall in advance tax payments under section 234 B and 234C of the Income Tax Act, at the rate of one per cent per month (under each section), for every month of delay.

So, if you file your returns anytime until December 31 due to extension of the deadline (even if your dues are within ₹1 lakh) and decide to pay all the taxes due when filing the return only, the charges under 234 B and C will go up.

While interest is levied under section 234 C for defaults or delays in quarterly payments of advance tax, section 234 B applies when the tax payer has not paid at least 90 per cent of the tax for any financial year as advance tax by April 1 of the following year.

Vina: That’s a lot of insight Tina. Thank you very much for enlightening me. Will go and file my returns ASAP!

Published on September 25, 2021

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