Section 216 of ITA, 1961 : Section 216: Interest Payable By Assessee In Case Of Under-Estimate, Etc

Explanation using Example

Imagine a scenario where Mr. Sharma, a freelancer, earns income from various projects throughout the year. For the financial year 2022-23, he estimated his income and accordingly calculated his advance tax liability. He decided to pay this tax in four instalments as per the due dates provided by the Income Tax Act, 1961.

However, he underestimated his income in the first two instalments and paid less advance tax than what was actually due. Upon regular assessment after the end of the financial year, the Assessing Officer (AO) found that Mr. Sharma should have paid more advance tax in those instalments.

As per Section 216 of the Income-tax Act, 1961, the AO may direct Mr. Sharma to pay simple interest at 15% per annum on the difference between the amount he paid and the amount he should have paid. This interest would be calculated for the period during which his payments were deficient.

For example, if Mr. Sharma paid ₹20,000 in the first instalment but should have paid ₹50,000, he would owe interest on the ₹30,000 that he underpaid, for the period it was unpaid.