HOW TO COMPUTE INTEREST U/S 234 A OF INCOME TAX ACT

HOW TO CALCULATE INTEREST u/s 234 OF INCOME TAX ACT 

Interest u/s 234A is the Interest for default for Furnishing Return of Income u/s 139(1) or 139(4) or Return filed in response to notice u/s 142(1).
 
1.- CONDITIONS FOR LEVY OF INTEREST u/s 234A

a) Where Return of Income (ITR) is not furnished by Assessee.
b) Where Return of Income (ITR) is furnished by assessee after Due Date of furnishing Return specified u/s 139(1).
 
2.- RATE OF INTEREST

>1% per month or part of month.
   (Part of month means Interest for whole month is charged @1% even if the  
   default is for 1 day)

3.- AMOUNT ON WHICH INTEREST u/s 234 A   IS COMPUTED
                                    Total Tax Liability                                                  XXX
Less-   TDS                                                                                               XX                              
            Relief u/s 89(1)                                                                               XX
            Relief u/s 90/91                                                                              XX
            Advance Tax                                                                                  XX
                                    NET TAX LIABILITY                                            XXX
 
4.- CHARACTERSTICS OF INTEREST U/S 234A

>Interest u/s 234A is mandatory in nature which can only be waived off by chief Commissioner of Income Tax (CCIT) or Direct General of Income Tax (DG).
>If the amount of self assessment tax paid by assessee fall short of the amount required to be paid u/s 140A as self assessment tax.
Then the amount so paid shall be first adjusted towards Interest and balance towards Income Tax.
 
5.- ILLUSTRATIONS

Suppose an individual furnish his ITR on 1^st Sept.2015 and the due date of filing is 31^st July,2015.
            Income from salary           = Rs 3,50,000
            Tax Payable By Individual = Rs 10,000
            TDS deducted on salary    = Rs 2,000
 
Then, Interest required to be paid by such individual u/s 234A is:
            Period of default                =          2 months (August/September)
            Rate of Interest                   =          1%
            Amount of Interest            =          (10,000-2,000)1%*2 months
                                                            =          Rs 160
 
 
Author Can Be Reached At :                                                                                         
Ankit Gupta
ankit@taxzippy.com