Levy of Interest of Sec 234A of Income Tax, Individual- Non Audit Cases, where net tax liability is more than 1 Lakhs- AY 2021-22

In the recent intimation of Sec 143(1) of Income Tax Act 1961, CPC is leving interest under Sec 234A till the filing of return, however the assessee has paid all the taxes before the due date of return, which was extended by CBDT till 31st December 2021 for individual non audit cases.

Extract of Sec 234A of Income Tax Act 1961 :

Interest for defaults in furnishing return of income.

234A. (1) Where the return of income for any assessment year under sub-section (1) or sub-section (4) of section 139, or in response to a notice under sub-section (1) of section 142, is furnished after the due date, or is not furnished, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the date immediately following the due date, and,—

(a)  where the return is furnished after the due date, ending on the date of furnishing of the return; or

(b)  where no return has been furnished, ending on the date of completion of the assessment under section 144,

on the amount of the tax on the total income as determined under sub-section (1) of section 143, and where a regular assessment is made, on the amount of the tax on the total income determined under regular assessment, as reduced by the amount of,—

(i)  advance tax, if any, paid;

(ii)  any tax deducted or collected at source; (iia) any relief of tax allowed under section 89;]

(iii) any relief of tax allowed under section 90 on account of tax paid in a country outside India;

(iv) any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section;

(v)  any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and

(vi) any tax credit allowed to be set off in accordance with the provisions of section 115JAA or section 115JD

 

Interest under Section 234A of the Income-tax Act, 1961 (hereinafter the Act) is charged in case of default in furnishing return of income by an assessee. The interest is charged at the specified rate on the amount of tax payable on the total income, as reduced by the amount of advance tax, TDS/TCS, any relief of tax allowed under section 90 and section 90A, any deduction allowed under section 91 and any tax credit allowed in accordance with the provisions of section 115JAA and section 115JD of the Act.

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Since self-assessment tax is not mentioned as a component of tax to be reduced from the amount on which interest undersection 234A of the Act is chargeable, interest is being charged on the amount of self-assessment tax paid by the assessee even before the due date of filing of return.

The Board has decided that no interest under section 234A of the Act is chargeable on the amount of self-assessment tax paid by the assessee before the due date of filing of return of income- CIRCULAR NO 02/2015 Dated: February 10, 2015.

For AY 2021-21, CBDT has issued circular for extension of returns via, Circular No. 01/2022F.No. 225/49/2021/ITA-II dated 11th January 2022. Please note the clarifications of this circular which are as follows :

Clarification 1 : It is clarified that this extension shall not apply to Explanation 1 to Section 234A of the Act, in cases where the amount of tax on the total income as reduced by the amount as specified in clauses (i) to (vi) of sub-section (1) of that section exceeds one lakh rupees.

Thus, combine study of Sec 234A and the clarification of Circular No. 01/2022, clarifies that due date for the assessee’s whose tax payable reduced by advance tax,TDS/TCS, any relief of tax allowed under section 90 and section 90A, any deduction allowed under section 91 and any tax credit allowed in accordance with the provisions of section 115JAA and section 115JD of the Act exceeds 1 lakhs is 31st July 2021 only.

In case if assesses has paid taxes in August 2021 but filed his ITR in Dec 2021 (Due date extended to 31st Dec 21) then Interest of 234A will be levied till the date of filing of ITR i.e till Dec 2021 because it will be treated as default in furnishing of ITR within due date which is still 31st July 2021

Conclusion : CPC is correct in charging interest till date of filing of ITR where the tax liability is more than 1 lakhs after reducing TDS, advance tax, AMT/MAT and other allowed taxes prescribed in 234A(1).

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