CHARGE OF INTEREST UNDER INCOME TAX ACT, 1961

1.       General Principle

The Supreme Court in the matter of Sandvik Asia Ltd. v. CIT, Pune [2006] 150 Taxman 591 (SC)

In our view, the Act recognizes the principle that a person should only be taxed in accordance with law and hence where excess amounts of tax are collected from an assessee or any amounts are wrongfully withheld from an assessee without authority of law the revenue must compensate the assessee.”

2.      Provisions under the Income Tax Act, 1961 – Interest Payable by the Assessee

PARTICULARS

234A

234B

234C

234D

220(2)

SECTION
NATURE OF DEFAULT DELAY OR DEFAULT IN FILING RETURN OF INCOME U/S 139(1) OR U/S 142(1) DEFAULT IN PAYMENT OF ADVANCE TAX DEFEREMENT OF ADVANCE TAX EXCESS REFUND DELAY IN PAYMENT OF AMOUNT SPECIFIED IN NOTICE OF DEMAND
APPLICABILITY Return of income of assesseeA)      is furnished after the due date of filing return orB)      is not furnished. Assessee liable to pay Advance Tax hasA)      not paid orB)      paid less than 90% of Assessed tax Assessee liable to pay Advance Tax hasA)     not paidB)     short paidany instalments within the due date of payment of such tax. Any refund is granted to the assessee u/s 143(1) –A)     No refund is due on regular assessment;B)     The amount refunded exceeds the amount of refund due on regular assessment The amount specified in notice of demand is  -not paid within the period limited u/s 220(1) – usually 30 days from the service of notice u/s 156.
AMOUNT Assessed Tax as reduced by TDS, TCS, Advance Tax and Self-Assessment tax paid before the due date of filing return u/s 139(1) and Tax relief u/s 90, 90A and 91 and MAT credit allowable u/s 115JAA. Assessed Tax as reduced by TDS, TCS, Advance Tax and Tax relief u/s 90, 90A and 91 and MAT credit allowable u/s 115JAA. Instalments of Advance Tax u/s 208 as reduced by the amount paid determined on returned income. The whole or excess amount of refund The amount specified in notice of demand.
PERIOD – COMMENCING ON the Due Date of filing return u/s 139(1) the 1st day of April of the year immediately following the ‘previous year’ In case of Corporate assessees-3 Months for First, Second & Third Installments;1 Month for Last InstallmentIn case of Non-Corporate assessees

3 Months for First & Second Installment

1 Month for Last Installment

The Date of grant of refund The Date of payment specified in the Notice of Demand
PERIOD – ENDING ON the Date of Filing return; orwhere no return is furnished – the date of completion of assessment u/s 144. the Date of determination of total income u/s 143(1) / 143(2) /144.However, relief u/s 234B(2) is provided in respect of tax paid u/s 140A (Self Assessment Tax), in which case – the period will end on the Date of payment of tax – to the extent of amount paid.  The Date of regular assessment The Actual Date of payment.
RATE OF INTEREST simple interest @ 1.00 % per month or part thereof simple interest @ 1.00 % per month or part thereof simple interest @ 1.00 % per month or part thereof simple interest @ 0.05 % per month or part thereof simple interest @ 1.00 % per month or part thereof

Extension of Due Date of Filing of Income Tax Returns.

In case the due date of Filing of Income Tax Return is extended, there is a relief from interest charged u/s 234A (interest for delay in filing of income tax return) but there is no relief in interest u/s 234B (interest for delay in payment of Advance Tax).

Reason:         

Interest u/s 234B is charged from the 1st Day of Financial Year till the date of payment of Assessed Tax. Due Date of filing of ITR is irrelevant for calculation of interest u/s 234B

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