1. Facts of the Case
Mr. X, an assessee, estimated his tax liability at ₹25,000 for the Financial Year 2015–16 (Assessment Year 2016–17) and intended to pay the tax under the advance tax provisions.
- He paid the first installment of advance tax on or before 15th September 2015.
- He failed to pay the second installment (due on or before 15th December 2015) and the third installment (due on or before 15th March 2016).
- Later, he paid the entire balance tax as self-assessment tax and filed his return on 15th December 2016, which is after the due date (normally 31st July 2016 for individual non-audit cases).
Now, interest needs to be calculated for:
- Default in payment of advance tax.
- Delay in filing of income tax return.
2. Issues in the Case
- Whether Mr. X is liable to pay interest for the default in payment of advance tax? If yes, under which section(s) and how much?
- Whether Mr. X is liable to pay interest for late filing of the income tax return? If yes, under which section and for what duration?
- How should the total interest payable by Mr. X be computed under the relevant provisions?
3. Legal Principles and Relevant Sections
A. Section 234B – Interest for Default in Payment of Advance Tax
- Applies when:
- Advance tax paid is less than 90% of assessed tax.
- Interest is charged @ 1% per month from 1st April following the financial year to the date of payment of self-assessment tax.
B. Section 234C – Interest for Deferment/Non-payment of Advance Tax Installments
- Applies when:
- There is default or deferment in payment of any installment of advance tax.
- Interest is charged @ 1% per month for three months for the 2nd installment (due 15th December), and 1 month for the 3rd installment (due 15th March).
C. Section 234A – Interest for Late Filing of Return
- Applies when:
- Return is filed after the due date (31st July 2016).
- Interest @ 1% per month or part thereof from 1st August 2016 till the actual date of filing return (i.e., 15th December 2016).
4. Possible Judgement and Interest Calculation
Assumptions:
- Advance Tax Liability (Assessed Tax): ₹25,000
- Amount paid as 1st installment (by 15 Sept 2015): ₹6,250 (25% of ₹25,000)
- Balance payable: ₹18,750
- Date of payment of self-assessment tax: 15th December 2016
(i) Interest under Section 234C:
- 2nd Installment (Due 15 Dec 2015):
Expected payment = 45% of ₹25,000 = ₹11,250
Paid till 15 Dec 2015 = ₹6,250
Shortfall = ₹5,000
Interest = ₹5,000 × 1% × 3 months = ₹150 - 3rd Installment (Due 15 Mar 2016):
Expected total = 75% of ₹25,000 = ₹18,750
Paid till 15 Mar = ₹6,250
Shortfall = ₹12,500
Interest = ₹12,500 × 1% × 1 month = ₹125
Total Interest under 234C = ₹150 + ₹125 = ₹275
(ii) Interest under Section 234B:
- Advance tax paid < 90% of assessed tax ⇒ Section 234B applies
- Interest from 1st April 2016 to 15th December 2016 = 9 months
- Interest = ₹25,000 × 1% × 9 = ₹2,250
(iii) Interest under Section 234A:
- Return filed on 15th December 2016 (due date was 31st July 2016)
- Delay = 4.5 months, counted as 5 months
- Interest = ₹25,000 × 1% × 5 = ₹1,250
Summary of Interest Liability:
| Section | Nature of Default | Interest Amount |
|---|---|---|
| 234C | Deferment of Advance Tax | ₹275 |
| 234B | Default in paying 90% advance tax | ₹2,250 |
| 234A | Late filing of return | ₹1,250 |
| Total Interest Payable | ₹3,775 |
Final Judgement
Mr. X is liable to pay a total interest of ₹3,775 under Sections 234A, 234B, and 234C of the Income Tax Act, 1961 due to his failure to pay the advance tax on time and delay in filing the return. The breakdown of interest is as follows:
- ₹275 for deferment of advance tax (Section 234C)
- ₹2,250 for default in payment of 90% of assessed tax (Section 234B)
- ₹1,250 for delay in return filing beyond due date (Section 234A)
This interest is mandatory and automatically calculated at the time of filing belated returns or processing the return under Section 143(1).
