Interest under Income Tax Act

Interest For failure to deduct or pay any TDS [Sec. 201(A)]:

Where a person responsible for deducting tax at source does not deduct a source under Chapter XVII or after deducting tax fails to pay the same as required by Act, he is liable to pay interest @ 1% for every month or part of a month on the amount of such tax from the date on which tax deductible till the date it is actually paid. Before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3) of section 200, such interest should be paid on self- assessment basis.

Interest for failure to collect any tax or pay TCS [Sec. 206C(7)] :

Where a person responsible for collecting tax at source under section 206C does not collect or after collecting tax fails to pay the same as required by Act, he is liable to pay interest @ 1% for every month or part of a month on the amount of such tax from the date on which tax should have been collected till the date it is actually paid. Before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3) of section 200, such interest should be paid on self- assessment basis.

Interest on Delayed Payment of Tax other than Advance Tax [Sec. 220(2)]

Where an assessee fails to pay any tax, penalty, etc. within 30 days from the date of the Notice of Demand issued under Section.156, he shall be liable to pay interest on the outstanding demands @1% for every month or part of a month, for the period of default. Where the Notice of Demand issued under section.156 is issued for payment of Advance Tax, interest is not chargeable on the outstanding demand, if any. Penalty is prescribed under section 221 for any default in payment of advance tax, any other tax, penalty, etc. within 30 days from the date of the Notice of Demand issued under Section.156. Penalty can be to the extent of the amount of tax in arrears. However, where assessee has preferred, the AO can exercise his discretion so as to treat the assessee as not being in default in respect of nonpayment of tax on the amounts disputed in first appeal and then penalty under section 221 does not attract [Sec. 220(6)]

The following additional points should be considered :-

(i) Interest charged under Section.220 (2) is reduced in case of reduction of tax in appeal, rectification or revision.
(ii) Interest under Section 220(2) is to be paid on delayed payments even if extension of time making payment has been granted.

Amount on which interest is payable:
(i) Under Section 234A(1): Interest is payable on tax determined u/s 143(1) or on regular assessment u/s 143(3)/ 144/147/153A minus TDS/ Tax collected at source and advance tax paid by the assessee.
(ii) Under Section 234A(3): Tax determined u/s 147 or 153A minus tax on total income determined u/s 143(1), 144 or 147 earlier.
No Interest if Taxes are paid :
Where the assessee had paid the taxes before the date of filling the return but could not file the return for reasons beyond his control but filled it belatedly, the charge of interest u/s 234A is not valid as in such cases there is no loss to the revenue. However interest would be payable where tax has not been deposited prior to the date of filling of the return. [Prannoy Roy (Dr.) v CIT 121 Taxman 314 (Del)]
For default in paying advance tax [Sec. 234B] :
Where an assessee who has failed to pay advance tax, interest @ 1% for every month or part of month is payable on assessed tax. Such interest is payable from April 1 of the assessment year to the date of determination of income under section 143(1) or on regular assessment.
Where an assessee who had paid advance tax but the amount of advance tax paid by him less than 90% of assessed tax, interest is payable @1% for every month or part of the month on the assessed tax minus advance tax is paid. Such interest is payable from April 1 of assessment year upto the date of determination of income u/s/ 143(1) or on regular assessment.
Any tax paid after 15th March but before 31st March is considered as advance tax paid. Where, before the date of completion of regular assessment, tax is paid on the basis of self assessment under section 140 A or otherwise, the interest will be calculated as follows-
(i) upto the date of payment of tax under section 140A or otherwise, interest will be calculated as mentioned earlier; and
(ii) from the date of payment of tax under section 140A or otherwise, interest will be calculated on the amount by which advance tax and tax payment stated in (a) above falls short assessed tax.
The CBDT is empowered to relax the provisions of Sec. 234B in appropriate cases. [Sec. 119(2)(a)]

Interest for Deferment of Advance Tax [Sec. 234C]

An advance tax is said to have been deferred, if any one or more of the installments are not paid or tax paid is less than prescribed under the law. In case of such deferment of advance tax simple interest shall be payable as follows :

(i) For Assessee other than Companies :
(a) If the tax paid upto 15th September is less than 30%Simple interest on the amount of shortfall @1%
p.m.for 3 months
(b) If the tax paid upto 15th December is less than 60%– do –
(c) If the tax paid upto 15th March is less than 100% of the tax dueSimple interest on the amount of shortfall @ 1%.
(ii) For Company Assessees : 
(a) If the tax paid upto 15th June is less than 15%Simple interest on the amount of shortfall @1% p.m. for 3 months
(b) If the tax paid upto 15th September is less than 45%– do –
(c) If the tax paid upto 15th December is less than 75%– do –
(d) If the tax paid upto 15th March is less than 100%Simple interest on the amount of shortfall @ 1%
for 1 month

No interest under section 234C is leviable where the shortfall in payment of advance tax installments is on accountof under-estimate/non-estimate of any capital gains or winning from lotteries, crossword puzzles, races, etc. This concession of not charging of interest is applicable where such incomes arise after payment of any of the installmentsand the whole tax on the items of income stated herein before is deposited along with the next succeeding installmentfalling due after the income arose.

Interest for Failure to pay Advance Tax [Sec. 234B and 234C]

Interest under sections 234B and 234C is payable even in cases where the assessee fails to pay advance tax at all.Any tax paid after 15th March but before 31st March is considered as advance tax paid.

INTEREST IS PAYABLE TO ASSESSEE ON REFUND [Sec. 244A]

Interest on excess payment of advance tax, tax deducted or collected at source and any other tax or penalty becoming refundable shall be paid @ 1/2% for every month or part of a month. The period for which the interest is payablewill be:
(i) For refund out of advance and tax deducted at source, from 1st April of relevant assessment year to the date on which the refund is granted. However, no interest is payable, if the amount of refund is less than 10% of the tax determined under section 143(1) or on regular assessment or assessment of FBT under section 115WE,and
(ii) For all other tax or penalties, from the date of payment of tax or penalty to the date on which the refund is granted. Delay in granting refund attributable to the assessee is excluded from the period for which interest is payable. Where the amount on which interest was payable is increased or decreased due to regular assessment orders, reassessment, rectification, appeals, revision or Settlement Commission’s order, interest is also will be increased of decreased.
Interest earned by assessee under section 244A is treated as taxable income of the previous year in which it is allowed.

ROUNDING OFF OF MONTH [Rule 119A]

The interest is to be calculated, any fraction of a month deemed to be full month and the interest shall be so calculated

ROUNDING OFF OF AMOUNT [Rule 119A]

The amount of tax, penalty or other sum in respect of which interest is to be calculated is to be rounded off to thenearest multiple of ` 100 and for this purpose any fraction of ` 100 is to be ignored.

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