How to Compute Interest on TAX

How to Compute Interest on TAX 

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Interest under section 234A – Default in furnishing the return of Income:

If the assessee has not filed his return of income within the time limit prescribed, he shall pay simple interest @ 1% for every month or part of a month. It is calculated from the due date to date of furnishing the return.

Example:

A company files its return on 10th December. Due date under the Act is 30th September. Suppose the tax payable by the company is Rs.100000. Interest will be calculated as follows:

Tax = 100000
Delay = 3 months ie Oct, Nov, Dec.
Interest = 100000*3%= Rs.3000

Interest under section 234B- Default in payment of Advance Tax:

If an assessee has to pay advance tax and he has not paid such tax or if the advance tax paid by him is less than 90% of the assessed tax, he shall pay simple interest @ 1% every month or part of a month.

It is calculated from April 1st of the next financial year to date of determination of total income under Section 143(1). But, if regular assessment u/s. 143(3) is completed, then interest is chargeable up to the date of regular assessment.

Interest shall be calculated on the amount equal to the assessed tax in case no advance tax is paid, or on the amount by which the advance tax paid falls short of the assessed tax.

Example:

Mr. A has a tax liability of Rs.300000. TDS = Rs.50000

Advance tax payment details are as follows:

15th Sept 2011 Rs.30000
15th Dec 2011Rs.50000
15th Mar 2012 Rs.55000
Total Rs.135000

Interest u/s 234B is calculated as follows:

Tax on income Rs.300000
Less: TDS Rs.50000

Assessed tax Rs.250000

90% of assessed tax = 250000*90% = 225000
But Advance tax paid = Rs.135000
Hence 234B is attracted.

Shortfall = 250000-135000= Rs.115000
(Shortfall means difference between assessed tax and advance tax paid).

Interest under section 234 B = 115000*1%*4 months (Apr-July) = Rs.4600