Section 234D of the Income Tax Act, 1961 deals with the consequences of delayed payment of advance tax. Advance tax is a tax paid in advance on the income that is expected to be earned during the financial year. It is paid in installments throughout the year, and failure to pay it on time can lead to penalty under Section 234D.
Let’s understand the provisions of Section 234D in detail:
What is Section 234D?
Section 234D was introduced in the Income Tax Act, 1961 by the Finance Act, 2012. It applies to all taxpayers who are liable to pay advance tax. The section states that if a taxpayer fails to pay the whole or any part of the advance tax on or before the due date, they will be liable to pay interest at the rate of 1% per month or part of a month for the period of delay.
When does Section 234D apply?
Section 234D applies in the following cases:
- Failure to pay advance tax: If a taxpayer fails to pay the advance tax on or before the due date, they will be liable to pay interest under Section 234D.
- Shortfall in payment of advance tax: If a taxpayer has paid advance tax but the amount paid is less than 90% of the assessed tax, they will be liable to pay interest under Section 234D on the shortfall amount.
- Delayed payment of self-assessment tax: If a taxpayer pays the self-assessment tax after the due date, they will be liable to pay interest under Section 234D on the amount of tax paid after the due date.
How is interest calculated under Section 234D?
Interest under Section 234D is calculated at the rate of 1% per month or part of a month for the period of delay. The interest is calculated from the due date of payment of advance tax or self-assessment tax, as the case may be, till the date of actual payment.
For example, if a taxpayer has a tax liability of Rs. 1,00,000 and the due date for payment of advance tax is September 15. If the taxpayer pays Rs. 70,000 on or before September 15 and the balance of Rs. 30,000 on October 15, the interest under Section 234D will be calculated as follows:
- Interest for September (1% of Rs. 30,000 for 15 days) = Rs. 450
- Interest for October (1% of Rs. 30,000 for 31 days) = Rs. 930
- Total interest under Section 234D = Rs. 1,380
What are the consequences of non-payment of interest under Section 234D?
If a taxpayer fails to pay the interest under Section 234D, they will be liable to pay penalty under Section 221 of the Income Tax Act. The penalty can be up to the amount of tax in arrears.
Conclusion:
Section 234D of the Income Tax Act, 1961 is an important provision that deals with the consequences of delayed payment of advance tax. Taxpayers must ensure that they pay advance tax on time to avoid paying interest and penalty under Section 234D. In case of any shortfall in payment of advance tax, taxpayers must pay the interest calculated under Section 234D along with the tax liability to avoid any penalties.
Read more useful content:
- section 234e of income tax act
- section 286 of income tax act
- section 90a of income tax act
- section 40a(7) of income tax act
- section 226(3) of income tax act
- section 24 of income tax act
Frequently Asked Questions (FAQs)
Q. What is Section 234D of the Income Tax Act?
Section 234D of the Income Tax Act, 1961 deals with the consequences of delayed payment of advance tax. It states that if a taxpayer fails to pay the whole or any part of the advance tax on or before the due date, they will be liable to pay interest at the rate of 1% per month or part of a month for the period of delay.
Q. Who is liable to pay interest under Section 234D?
All taxpayers who are liable to pay advance tax are also liable to pay interest under Section 234D. This includes individuals, Hindu Undivided Families (HUFs), firms, companies, and any other entity that is liable to pay advance tax.
Q. What is the due date for payment of advance tax?
The due dates for payment of advance tax are as follows:
For non-corporate taxpayers (i.e., individuals, HUFs, etc.), the due dates are June 15, September 15, December 15, and March 15 of the relevant financial year.
For corporate taxpayers (i.e., companies), the due dates are June 15, September 15, December 15, and March 15 of the relevant financial year.
Q. What happens if a taxpayer fails to pay advance tax?
If a taxpayer fails to pay advance tax on or before the due date, they will be liable to pay interest under Section 234D at the rate of 1% per month or part of a month for the period of delay.
Q. What happens if a taxpayer pays less than 90% of the assessed tax as advance tax?
If a taxpayer has paid advance tax but the amount paid is less than 90% of the assessed tax, they will be liable to pay interest under Section 234D on the shortfall amount.
Q. What happens if a taxpayer pays the self-assessment tax after the due date?
If a taxpayer pays the self-assessment tax after the due date, they will be liable to pay interest under Section 234D on the amount of tax paid after the due date.
Q. How is interest under Section 234D calculated?
Interest under Section 234D is calculated at the rate of 1% per month or part of a month for the period of delay. The interest is calculated from the due date of payment of advance tax or self-assessment tax, as the case may be, till the date of actual payment.
Q. What happens if a taxpayer fails to pay the interest under Section 234D?
If a taxpayer fails to pay the interest under Section 234D, they will be liable to pay penalty under Section 221 of the Income Tax Act. The penalty can be up to the amount of tax in arrears.
Q. Can a taxpayer file an appeal against the interest charged under Section 234D?
Yes, a taxpayer can file an appeal against the interest charged under Section 234D. The appeal must be filed with the Commissioner (Appeals) within 30 days of the date of receipt of the notice of demand.
