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Penalty On Default/Late Payment Of Income Tax Or Advance Tax In India

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As we all know payment of income tax comes with a deadline every year which make us pay a part of our annual income in the form of tax to income tax department. We all need to make the payment of income tax on or before that deadline else income tax department levies some penalty in the form of interest. The percentage of interest that income tax department puts on tax payers in the form of penalty varies. Lets have a look what kind of penalties income tax department levies on tax payers in case of late payment of tax or advance tax :-

Interest Under Section 234A – Default In Payment Of Return Of Income

If tax payer don’t file his/ her return of income on the due date then he/ she will be liable to pay 1% simple interest per month on the amount due from the due date of filing the return.

Due Date Of Filing Income Tax Return

For Salaries assessees July 31
For corporate, non corporate and working partners September 30
For corporate assessees who are required to furnish a report under section 92E. November 30

If you are a salaried person then you have to file your income tax return on or before 31st July. Due to some reason you could not file your return on the due date and file your return on 31st December i.e after 5 months. Then income tax department will ask you to pay interest on the amount due @1% for 5 months. Here for example the amount of tax due is Rs 50,000. So the amount of interest payable will be:-

Amount of Tax Due : Rs 50,000

Delay : 5 Months

Interest/ Penalty : Rs 50,000*5/100 = Rs 2500

Income Tax

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Interest Under Section 234B – Default In Payment Of Advance Tax

If you are liable to pay advance tax and you either have not paid your advance tax or have paid less than 90% of your total tax liability then you have to pay 1% simple interest every month on the amount due.

ALSO READ : Advance Tax–When & How To Pay?

Due Date For Payment Of Advance Tax For Individuals/ Firms For Corporate Assessees
On or before 15th June Not applicable 15% of tax payable
On or before 15th September 30% of tax payable 30% of tax payable
On or before 15th December 30% of tax payable 30% of tax payable
On or before 15th March 40% of tax payable 25% of tax payable
On or before 31st March Tax on capital gains or casual incomes arising after 15th March (if any) Tax on capital gains or casual incomes arising after 15th March (if any)

If 90% of total tax liability is not paid as advance tax then tax payer will have to pay interest. Interest will be calculated on the shortfall of advance tax from the first day of the next financial year i.e April 1st to the date of determination of total income i.e July 31.

Here for example, your total tax liability for the year 2010-11 is Rs 500,000. The advance tax paid by you during the year was:  Rs 1,50,000 on 15th September, Rs 150,000 on 15th December and Rs 100,000 on 15th March.

ALSO READ : Step By Step Guide To File/ Pay Advance Tax Return Online In India

So the total tax paid paid you you in the year 2010-11 is Rs 4,00,000 out of Rs 500,000. So the amount of interest payable will be:-

Tax Shortfall => 90% of Rs 500,000 = 4,50,000 – Rs 4,00,000 = Rs 50,000

Delay => 4 months (April/ May/ June/ July) i.e 31 July 2011

Interest/ Penalty = 50,000*4*1/100 = Rs 2000

Interest Under Section 234C – Deferment of Advance Tax

Deferment means postponement, here when we talk about deferment of advance tax the literal meaning is postponement of advance tax to another due date. In other words, when a tax payer either do not make the installment of advance tax on time or make a lesser payment then the difference between the amount of advance tax payable and the amount of advance tax paid will be called as deferred advance tax.

So if a tax payer pays lesser amount of advance tax then he/ she will be liable to pay interest on the shortfall @1% per month for the next 3 months i.e until the next installment due date.

Here for example, your total tax liability for the year 2010-11 is Rs 500,000. The advance tax paid by you during the year was: Rs 1,50,000 on 15th September , Rs 100,000 on 15th December and Rs 1,80,000 on 15th March.

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Due Date Tax Payable Tax Paid Difference Interest Charged
15 September 30% of 500,000 = 1,50,000 1,50,000 0
15 December 30% of 500,000 = 1,50,000 100,000 50,000 50,000*3*1/100 = 1500
15 March 40% of 500,000 = 2,00,000 200,000 20,000 20,000*1*1/100 = 200

If we look at the above table which describes the due dates and installment percentage which needs to be paid on the due date. Will get to know that the amount paid by you in the second and third installment is lesser. So you will have to pay interest of 3 months for the second installment and 1 month for the third installment as march is end of the financial year.

The total interest payable under section 234C is Rs 1700.

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