As per the Income Tax rule, you should file your tax returns within the due date, also make sure you have paid advance tax as per the schedules. If you missed to pay advance tax within the prescribed date or skipped to file ITR by the due date having tax liabilities to be cleared, then you will be liable to pay interest penalties in additions to actual tax. In these situations, the chargeable penalties are under section 234A, 234B & 234C.
Let us understand these provisions
Interest under section 234A: Default in furnishing the Return of Income
If you haven’t not filed income tax return within the time limit prescribed, then you will have to pay simple interest @ 1% for every month (even part of the month considered as one month) since the due date of ITR.
For example: You are filing ITR on 20th December for which the due date was 31st July. As per the total calculation, if the actual tax liabilities arrived at Rs. 2,00,000, the interest personalities would be Rs. 10,000 i.e. 1% of Rs. 2,00,000 × 5 (months delayed, Aug, Sep, Oct, Nov, Dec). Refer below table;
To avoid such interest penalties on tax, it is always advised to file ITR at least on or before the due date.
Interest under section 234B: Default in payment of Advance Tax
Under this section, penalty arises for non-payment of advance tax or when the total amount of advance tax paid along with the amount of TDS is less than 90% of the total tax liability. Here interest will be calculated on the amount equal to the assessed tax in case no advance tax is paid, or on the amount by which the advance tax paid falls short of the assessed tax for time period from April to the month in which the return is filed.
For example: You have a tax liability of Rs. 2,00,000 for which advance tax paid for the year total is Rs. 75,000. then interest penalty will be Rs. 5,000 as calculated below;
If you have higher tax liabilities to be paid under Self-Assessement Tax, then this is the reason why you should file ITR as soon as financial year ends instead waiting till the due date.
Interest under section 234C: Deferment of Advance Tax
If the advance tax paid is less than actual advance tax instalments or if it is not paid at all, then in such case, interest penalty gets attracted u/s 234C. Interest is calculated on the difference between the instalment paid and instalment payable. Interest penalty amount would be 1% of shortfall tax per month for a period of 3 months for every deferment. But, for last instalment on 15th March, interest would be 1% for 1 month only. See below table;
Paying income tax is ok, but paying interest on tax isn’t worth because it is nothing, but a loss due to ignorance. Thus be alert, calculate estimated total year’s income properly, then pay right advance tax on time & of course do not delay filing income tax return.