Introduction:

The Income Tax Act has prescribed specific deadlines for filing of income tax returns each year in section 139. Failure to comply with these deadlines may result in legal consequences Failure to comply with income tax laws may incur penalties, including the obligation to pay interest as mentioned in section 234 of the Income Tax Act.

Section 234A :

Section 234A of the Income Tax Act deals with interest charged to taxpayers on late filing of their income tax returns. This interest accrues at the rate of 1% per month part thereof, calculated from the due date of filing the return until the actual filing date. It applies to the outstanding tax amount after accounting for advance tax, TDS, and other tax payments.

Types of the Interest:

• Section 234 encompasses three distinct types of interest:
• Section 234A deals with the consequences of delayed tax return submissions.
• Section 234B pertains to the repercussions of late payment of advance tax.
• Section 234C deals with the deferred payment of advance tax.

Applicability of  Section 234A:

• As per Section 234A, interest is charged at 1% per month or part thereof on the amount of tax payable from the due date of Income Tax Return (ITR) till the date of actual filing
• This interest is imposed for delays in filing the income tax return, submitting an updated return, or filing a return in response to a notice issued under Section 142.

Provisions of Section 234A :

• The Income Tax Act establishes a specific deadline for filing Income Tax Returns. Under Section 234A, it imposes simple interest for delays in filing ITR or non-payment. This provision applies even when filing ITR for an extended period, provided one’s tax payable exceeds Rs. 1,00,000.
• The interest rate is set at 1% for each month or part thereof, commencing after the due date for filing ITR in the current assessment year (AY). This interest is applicable to taxable income under standard assessment or the total income as per Section 143. Prior to interest calculation, deductions from taxable income can be made.
• Deductions from taxable income can include:
• Tax deducted at source (TDS)
• Advance tax payments, if applicable
• Relief provided under Section 90 for taxes paid within India
• Tax credits granted under Section 115JAA or Section 115JD
• Tax relief under Section 90A for taxes paid in specified territories outside India
• Deductions permitted under Section 91 for taxes paid overseas.

Interest under Section 234A:

• The interest under Section 234A is applicable from the date of filing of ITR till the date of return of income. If the taxpayer fails to file the return, interest continues till the amount charged under Section 144 is completed.
• In 2021, the due date for Assessment Year 2021-22 was extended to December 31, 2021, for regular taxpayers. The deadline for filing belated or revised returns was further extended to March 31, 2022, while for tax audit cases, it was extended to February 15, 2022.
• It is important to note that even a fraction of a month is counted as a full month when calculating the interest period. Regular taxpayers should clear any outstanding tax and file their ITR by July 31 of the current assessment year (AY). However, the deadline for taxpayers seeking audited returns has been extended to Oct. 31.
• As clarified by the CBDT, taxpayers are required to pay 1% interest on filing of ITR during this period under Section 234A. This applies even though many taxpayers have faced difficulties in filing their returns due to errors in the tax portal.

Calculation of interest under section 234A:

• Interest under Section 234A accrues at a rate of 1% per month or part thereof, calculated from the due date of filing the return until the actual filing date. It is calculated on the remaining tax amount after deducting advance tax, TDS, and other tax payments.
• Let’s say your total outstanding tax for the financial year 2018-2019 amounts to Rs. 4 lakh, and you file your return on March , 2020, instead of the original deadline in August 2019. The interest calculation would be as follows:
• Interest = 4,00,000 x 1% x 7 = Rs. 28,000
• So, Rs. 28,000 is the additional amount you’re required to pay as a penalty for the delay, calculated monthly.

Penalties:

• The Finance Act 2021 introduced a change in the penalty for non-submission of tax returns for the assessment year 2021-22, which was fixed at Rs. 5000 if paid after the due date in accordance with Section 139(1). But if the gross annual income of the assessee is less than Rs. 5 lakhs, the late payment/default fee is capped at Rs. 1000 
• From FY 2018 onwards, taxpayers who file their ITR after the due date attract a penalty under Section 234F. For applications made between July 31 and December 31, a late fee of Rs. 5000 application form. After December 31, the penalty will be Rs. 10,000 .
• Under Section 156, tax authorities have the authority to issue demand notices to taxpayers for settling outstanding dues. The period for furnishing returns in response to such notices is typically 30 days or less, determined by the Assessing Officer (AO). Failure to comply may result in a general penalty, which can extend up to the total amount of outstanding tax.

Conclusion:

Timely filing of income tax returns is essential to avoid interest and penalties under Section 234A of the Income Tax Act. Taxpayers should ensure that their returns are submitted by the due date to avoid additional late filing fees. Notably, the due date for filing tax returns for the assessment year 2021-22 has been extended to December 31, 2021 for individuals and Hindu Undivided Families (HUFs) not subject to tax audit.