Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Interest Payable By / To Assessee under Income Tax Act

Interest Payable By / To Assessee under Income Tax Act
Interest Payable By / To Assessee under Income Tax Act

1.   [Section 234A]- Interest Payable by the Assessee for default in furnishing Return of Income U/s 139(1)

The assessee is liable to pay interest in the following cases:

(a)        where the return of income is furnished after the due date.

(b)        where the return of income is not furnished by the assessee.

Rate of interest: Simple interest @ 1% per month or part of the month.
Period for which interest is payable: The interest will be payable for the period commencing on the date immediately following the due date and would end on:

in case of (a) above, the date of furnishing the return of income or in case of (b) above, date of completion of assessment u/s 144 (Best Judgment Assessment) or first time assessment, if done u/s 147 / 153A if there was no assessment made under section 144.

Amount on which interest is parable: Interest is payable on tax determined u/s 143(1) or on regular assessment under section 143(3)/I 44/or first assessment under section 147 / 153A (whichever section is applicable) if there was no assessment made under section 144 minus the following:

(1) Advance tax if any paid by the assessee,

(2) Tax deducted and collected at source,

(3) Any relief of tax allowed under section 89.

(4) The amount of relief of tax allowed under sections 90 and 90A and deduction from the Indian income-tax payable, allowed under section 91, and

(5) Tax credit allowed to be set off under section 11 5JAAJI 1 SJD from the tax on the total income.

Computation of Interest: Though the interest is payable on the balance tax determined as above, but any interest (computed as per the provisions of section 234A) paid under section 140A (relating to self assessment tax) on account of late filing of return shall be deductible [Section 234A(2)].

OTHER POINTS – The following points shall also be kept in view:

>>        Self-assessment tax paid before the due date and return submitted after due date –

The Assessing Officer cannot charge  interest under section 234A in a situation where the assessee has paid due taxes before the due date of submission  of return of income and merely filing of income-tax return is delayed—CIT v. Pranoy Roy [2009] 179 Taxman 53  (SC).

>>        Self-assessment tax paid after due date and return is submitted thereafter –

In case of Pranoy Roy (supra), the Apex Court  held that –

  1. if self-assessment tax is paid before the due date of submission of return of income and return is submitted after the due date, interest under section 234A is not applicable [Case (a)]; and
  2. if self-assessment tax is paid after the due date of submission of return of income, interest under section 234A is applicable [Case (b)]

Thus, interest will be computed as under :

Step-1

Tax on total income determined under section 143(1) or on regular assessment under section 143(3) or 144 or on first assessment under section 147 or section 153A (whichever section is applicable) if not covered under section 143(1) or 143(3) or 144  
Less :    
(i) tax deducted/collected at source  
(ii) advance tax paid  
(iii) the amount of relief of tax allowed under sections 89, 90 and 90A and deduction from the Indian income-tax payable, allowed under section 91, and  
(iv) tax credit allowed to be set off under section 115JAA / 115JD from the tax on the total income.  
Amount on which interest is payable  
Interest payable shall be :
[Amount on which interest is payable X 1% X number of months]
   

Step-II

Deduct the interest (computed as per the provisions of section 234A) already paid under section 140A on account of late filing of return which must have been computed as under:

 

Tax on Total Income declared in the return of income  
Less:    
(i) tax deducted/collected at source  
(ii) advance tax paid  
(iii) the amount of relief of tax allowed under sections 89, 90 and 90A and deduction from the Indian income-tax payable, allowed under section 91, and  
(iv) tax credit allowed to be set off under section 115JAA / 115JD from the tax on the total income.
Amount on which interest is payable  

Interest paid under section 140A was computed as under:

Amount on which interest is payable computed as above X 1% X number of months

Interest computed under Step I — Step II shall be the balance interest payable under section 234A

[Section 234A(3)]- Interest for defaults in furnishing the return of income required by a Notice U/s 148

Once the income has been determined under section 143(1) or the assessment has been done under section 143(3), 144 or 147 and the Assessing Officer issues a notice:

(i)      under section 148 for filing return of income for the purpose of reassessment / re-computation under section 147, or

(ii)     under section 153A for assessment in case of search or requisition, the assessee shall be liable to pay interest in the following cases:

(a)     when the return of income is furnished after the expiry of time allowed in the notice issued under section 148 or under section 153A; or

(b)          where no return of income is furnished by the assessee.

Rate of interest:         Simple interest @ 1% per month or part of the month.

Period for which interest is payable:             The interest will be payable for the period commencing on the date immediately following the expiry of rime limit given in the notice under section 48 or under section 153A and would end on:

In case of (a) above, the date of furnishing of return of income: or

In case of (b) above, date of completion of reassessment or re-computation under section 147 or reassessment under section 1 53A.

Amount on which interest is parable:           Interest is payable on the amount calculated as under:

(i)         Tax determined under section 147 or 153A
(ii) Less: tax on total income determined under section 143(1) or on assessment made under section 143(3), 144 or 147 earlier (whichever section is applicable)
Amount on which interest is payable

2.   [Section 234B(1)]- Interest payable for defaults in payment of Advance Tax

The assessee is liable to pay interest in the following cases:

(1)        advance tax has not been paid by the assessee; or

(2)        the advance tax paid by the assessee is less than 90% of the ‘Assessed Tax’.

‘Assessed Tax means:

Tax determined uls 143(1) or on regular assessment made u/s 143(3)1144 or on first time assessment u/s 147 or u/s 153A (whichever section is applicable)
Less: (a) TDS/Tax collected at source
(b) Any relief of tax allowed under section 89. (Inserted by the Finance (No. 2), 2019, w.e.f. 1.7.2007
(c) the amount of relief of tax allowed under sections 90 and 90A and deduction from the Indian income-tax payable, allowed under section 91, and
(d) tax credit allowed to be set off under section 115JAA / 115JD from the tax on the total income.
Assessed Tax

 

Rate of interest: Simple interest @ 1% per month or part of the month.
Period for which interest is payable: Interest will be payable from 1st April of the relevant assessment year to the date of determination of income u/s 143(1) and where a regular assessment is made, to the date of such regular assessment section/s 143(3) / 144 if there was no determination made section/s 143(1) or assessment made under section 143(3) or section 144 or first time assessment under section 147/153A, if there was no determination made under section 143(1) or assessment made under section 143(3) or section 144.
Amount on which interest is payable: Interest is payable on ‘Assessed tax’ if no advance tax is paid. However, if any advance tax has been paid, interest will be payable on assessed tax minus advance tax paid.
Computation of Interest: Interest will be computed as under:

(a)        When no tar is paid on self assessment or otherwise:          

Interest is payable on assessed tax minus advance tax paid, if any;

(b)        Where tar has also been paid on self assessment or otherwise

(i)      interest will be calculated on assessed tax – advance tax paid if any. It will be calculated for a period commencing from 1St April, to the date on which tax under section 140A or otherwise is so paid,

and thereafter

(ii)     interest shall be calculated on the balance amount (i.e. assessed tax – Advance tax – tax paid) till the date of determination of total income under section 143(1) or regular assessment under section 143(3)/144 or first assessment under section 147/153A, if there was no determination made under section 143(1) or assessment made under section 143(3) or 144.

Note.—Interest, computed as per clause (b) above, shall be reduced by any interest (computed as per provisions of section 234B) paid under section 140A.

Interest payable U/s 234B on Assessed Tax till the date of determination of Total Income under Section 143(1)

Interest will be computed under the following two steps:

Step 1

Assessed tax
Less: Advance tax paid. if any
Amount on which interest is payable ———

Interest will be calculated on this amount from 1st April of the relevant assessment
year till the date of payment of lax on self-assessment under section 140A or
otherwise
@ 1% per month

Note.—            If in the above case, if some tax was also paid before the tax paid on self assessment under section 140A, interest will be computed in two pans.

Firstly from 1st April to the date of payment of such tax on (assessed tax — advance tax paid), and

Secondly from the date of payment of such tax to the date of payment of self-assessment tax on (assessed tax — advance tax — tax so paid)

Step 2

Interest will be computed from the date when tax on self-assessment under section 140A was paid till the date of regular assessment on the following :

Assessed tax (for meaning of assessment tax see above)  
Less: (1) Advance tax paid, if any  
(ii) Tax paid before or on self-assessment under section 140A
Amount on which interest is payable   ——

Note.—

If in the above case any tax is paid for the relevant assessment year after the tax paid on self assessment under section 140A, interest will be computed in two parts.

Firstly from the date of self assessment tax under section 1 40A to the date of payment of such tax on the amount computed as above, and

Secondly from the date of payment of such lax to the dare of regular assessment on (the amount computed as above minus the tax so paid).

Amount of interest computed under Step Nos. I and 2 shall be aggregated and from such aggregate interest, interest (computed as per provisions of section 234B) already paid on self- assessment under section 140A shall be deducted. The balance shall be the net interest payable.

3.   [Section 244A]- Interest Payable to Assessee

1.     [Section 244A (1)]- Interest Payable on Refund of Income Tax

Where refund of any amount becomes due to the assessee under the Income-tax Act, he shall be entitled to receive, in addition to the said amount, simple interest on the refund calculated in the following manner:

(1) [Section 244A(1)(a)]- Where the Refund is arising out of excess payment of Advance Tax, TDS or TCS

Where the refund is out of any tax—

—           collected at source under section 206C or

—           paid by way of advance tax or

—           treated as paid under section 199 (relating to credit taken for tax deducted),

during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of 1/2% for every month or part of a month comprised in the period,—

(i)      from the 1st April of the assessment year to the date on which the refund is granted. if the return of income has been furnished on or before the due date specified under section l39(1) or

(ii)     from the date of furnishing of return of income to the date on which the refund is granted, in a case not covered under sub-clause (I) above.

(2)    [Section 244A(1)(aa)]- Where the Refund is out of any tax paid U/s 140A

Where the refund is out of any tax paid under section 140A (i.e. self-assessment tax), such interest shall be calculated at the rate of ‘12% for every month or part of a month comprised in the period, from the date of furnishing of return of income or payment of tax, whichever is later. to the date on which the refund is granted:

Provided that no interest under clause (a) or clause (aa) above shall be payable, if the amount of refund is less than 10% of the tax as determined under section 143(1) or on regular assessment.

(3)    [Section 244A(1)(b)]- Where the Refund is Due to any Other Case

Such interest shall be paid ½ % per month for every month or part of a month for the period commencing from the date of payment of lax or penalty to the date on which refund is granted.

2. [Section 244A(1A)]- Additional 3% interest on Refund in certain case, where the Refund arises as a result of giving effect to order of Appeal / Revision

In a case where a refund arises as a result of giving effect to an order under section 250 (order of CIT (Appeal)) or section 254 (order of ITAT) or section 260 (order of High Court) or section 262 (Order of Supreme Court) or section 263 (Revision order by (IT) or section 264 (Revision order by CIT), wholly or partly, otherwise than by making a fresh assessment or reassessment, the assessee shall be entitled to receive, in addition to the interest payable under section 244A(1), an additional interest on such amount of refund calculated at the rate of 3% pa. (total interest @ 9% p.a.), for the period beginning from the date following the date of expiry of the time allowed under section 153(5) to the date on which the refund is granted.

Explanation,— For the purposes of this clause, ‘date of payment of tax or penalty” means the date on and from which the amount of tax or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand.

3. [Section 244(1B)]- Where the Refund becomes due to the Deductor in respect of any amount paid to the credit of the Central Government under Chapter XVII-B

Where refund of any amount becomes due to the deductor in respect of any amount paid to the credit of the Central Government under Chapter XVII-B (relating to TDS). such deductor shall be entitled to receive, in addition to the said amount, simple interest thereon calculated @ ½ %, for every month or part of a month comprised in the period, from the date on which—

(a)        claim for refund is made in the prescribed form; or

(b)     tax is paid, where refund arises on account of giving effect to an order under section 250 or section 254 or section 260 or section 262,

to the date on which the refund is granted.

4.     [Section 244A(2)]- No interest for the period of delay in Refund if such delay is attributable to the Assessee

If the proceedings resulting in the refund are delayed for reasons attributable to the assessee or the deductor, as the case may be, whether wholly or in part, the period of the delay so attributable to him shall be excluded from the period for which interest is payable under section 244A(1) or (1A) or (1B), and where any question arises as to the period to be excluded, it shall be decided by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner whose decision thereon shall be final.

5. [Section 244A(3)]- Increase or Reduction of the Interest on Refund

Where, as a result of an order under section 143(3) or section 144 or section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under section 245D(4). the amount on which interest was payable under section 244A(1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the amount of the excess interest paid and requiring him to pay such amount; and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly.

High Court by impugned order held that where there was delay in filing petition before CBDT for claiming refund of TDS, assessee was not entitled to claim interest on refund till date of filing such petition: however, it would be entitled to interest for period thereafter. Special Leave Petition filed against impugned order dismissed.

See also  Limitation / Compliance by Assessee , Assessing Authority, etc. Under Income Tax Act, 1961
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