Section 234A of ITA, 1961 : Section 234A: Interest For Defaults In Furnishing Return Of Income

Explanation using Example

Imagine a taxpayer, Mr. Sharma, has a due date of July 31, 2021, to file his income tax return for the assessment year 2021-22. However, Mr. Sharma misses this deadline and ends up filing his return on December 10, 2021. According to Section 234A of the Income-tax Act, 1961, Mr. Sharma will be liable to pay interest on the tax due.

The interest calculation will be as follows: The period of delay is from August 1, 2021, to December 10, 2021, which is 4 months and 10 days. As per the Act, interest is charged at one per cent per month or part of a month. Therefore, for the purpose of interest calculation, the part of a month (10 days in this case) is considered as a full month, making it a total of 5 months.

If Mr. Sharma's tax liability after deducting advance tax, TDS, and any applicable reliefs is INR 50,000, the interest he owes under Section 234A will be 1% of INR 50,000 for 5 months, which amounts to INR 2,500.