Wednesday, July 18, 2012

Calculate Interest / Penalty on Income Tax


As per Income Tax Act, 
  • Individual should pay income tax periodically for financial year.
  • Total tax payable should be paid by end of financial year (before 31-March).
  • Income Tax Return should be filled within time frame (31-July) for previous financial year.

If delayed in any of above, individual needs to pay interest / penalty on income tax payable to Income Tax Department.

If Individual is salaried then employer deduct income tax from employee's salary deposit it to Income Tax Department periodically / every month on behalf of employee. 
In case of individual have fixed deposit(s) in bank(s) then bank should pay income tax (to Income Tax Department) on interest of FD(s) - if applicable and deduct that amount from interest payable to customers.

Section 234C: Interest penalty for delay in periodic payment of income tax

As per this section, individual should their income tax periodically in below manner:
  • 30% of total income tax should be paid by 15-September of financial year.
  • 60% of total income tax should be paid by 15-December.
  • 100% should be paid by 15-March.

If any delay in payment of income tax in above manner then individual are liable to pay interest / penalty under this section 234C as below:

  • If tax paid by 15-September is less than 30% of total income tax payable then 1% interest per month on difference (30% of total tax - tax paid) for 3 months.
  • If tax paid by 15-December is less than 60% of total income tax payable then 1% interest per month on difference (60% of total tax - tax paid) for  3 months.
  • If tax paid by 15-March is less than total income tax payable then 1% interest on total outstanding tax.

For example: Individual's total income tax payable is 20,000/- for whole financial year, so individual should deposit:
  • 30%   - 6,000/- till 15-September.
  • 60%   - 12,000/- till 15-December.
  • 100% - 20,000/- till 15-March.

Now if individual deposited / paid: 
  • 5,000/- on 1-September, 
  • 5,000/- on 1-December,
  • 8,000/- on 1-March & 
  • remaining 2,000/- on 20-March.

Interest / penalty calculated under this section as below:
  • On 15-September, difference is 1,000/- (6,000 - 5,000), so penalty will be 30/- (1% on 1,000 [difference on 15-September] for 3 months). 
  • On 15-December, difference is 2,000/- (12,000 - 10,000), so penalty will be 60/- (1% on 2,000 [difference on 15-December] for 3 months).
  • On 15-March, difference is 2,000/- (20,000 - 18,000), so penalty will be 20/- (1% on 2,000 [difference on 15-March] for 1 month).

So total penalty under this section 234C is 110/- (30 + 60 + 20).

Section 234B: Interest penalty for incomplete payment of income tax

As per this section, individual should pay at least 90% of their income tax payable by end of the financial year (means before 31-March). If on 31-March, balance tax payable is more than 10% then individual are liable to pay penalty of 1% per month on balance income tax amount from 1-April of assessment year.

For example: Individual total tax payable is 20,000/- for whole financial year, so individual should deposit 18,000/- before end of financial year. 

Now if individual deposited / paid 17,000/- till 31-March then should pay penalty on balance income tax (3,000/-): 
  • 30/- (1% on 3,000/- for one month) if will pay due income tax till 30-April.
  • 60/- (1% on 3,000/- for two month) if will pay due income tax till 31-May.
  • 90/- (1% on 3,000/- for three month) if will pay due income tax till 30-June. 
  • 120/- (1% on 3,000/- for four month) if will pay due income tax till 31-July and so on. 

Section 234A: Interest penalty for delay in filing income tax return

As per this section, individual should pay their income tax payable and file income tax return before 31-July of assessment year for previous financial year. If income tax return filled after this date (31-July) then individual are liable to pay penalty 1% interest on balance income tax per month.

For example: Individual total tax payable is 20,000/- for whole financial year, so individual should deposit 20,000/- and file income tax return for 31-July of assessment year.

Now if individual deposited / paid 17,000/- till 31-March then should pay penalty on balance income tax (3,000/-): 
  • 30/- (1% on 3,000/- for one month) if will pay due income tax & file income tax return till 31-August.
  • 60/- (1% on 3,000/- for two month) if will pay due income tax & file income tax return till 30-September.
  • 90/- (1% on 3,000/- for three month) if will pay due income tax & file income tax return till 31-October. 
  • 120/- (1% on 3,000/- for four month) if will pay due income tax & file income tax return till 31-October and so on.

Note: While paying balance, income tax individual should include penalties liable under above sections.


3 comments:

  1. I think this is one of the most vital info for me.
    And i'm glad studying your article. However want to
    commentary on some common issues, The web site taste is great, the articles
    is really excellent : D. Good job, cheers

    http://take4live.com/scuttle/bookmarks.php/liambean

    my blog ... Money from home

    ReplyDelete
  2. If the outstanding tax demand is rs 2730 for assessment yr 2011-12, then what will be the penalty/interest rates? The demand date is 19/3/2013. It will be very helpful if you could reply as soon as possible. Thank you

    ReplyDelete
  3. I am really glad that I have found this post and I thank you for letting us know about this information….This is a big help for sure!!Thanks!
    Plano tax service

    ReplyDelete