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.