Three different defaults: 234A for filing the return late, 234B for not paying at least 90% of the assessed tax as advance tax, 234C for missing the quarterly advance tax instalments — all at 1% per month or part of a month. Section 244A runs the other way, paying you 0.5% per month on a refund. Interest is compensatory and mandatory; penalty under s.270A, at 50% or 200% of tax, is punitive and requires a finding against you.
Section 234A — late return. Simple interest at 1% for every month or part of a month from the day after the due date of filing until the return is furnished, or where no return is furnished, until completion of the assessment under s.144. It is charged on the tax determined under s.143(1) or on regular assessment, reduced by advance tax paid, TDS and TCS credits and applicable reliefs.
Section 234B — advance tax not paid, or short. Simple interest at 1% for every month or part of a month, charged where no advance tax was paid despite a liability, or where the advance tax paid is less than 90% of the assessed tax. It runs from 1 April of the assessment year to the date of determination under s.143(1) or completion of regular assessment, on the shortfall.
Section 234C — instalments missed. Advance tax is payable by 15 June (15%), 15 September (45%), 15 December (75%) and 15 March (100%). Interest at 1% per month is charged on the shortfall in each instalment — for three months for the first three instalments and for one month for the March instalment. There is a relief: no interest is payable on the shortfall in the first and second instalments if at least 12% and 36% respectively of the advance tax has been paid.
Section 220(2) — the recovery clock. Once the amount in a s.156 notice of demand is not paid within the 30 days allowed, simple interest at 1% for every month or part of a month runs from the expiry of that period until payment. Section 220(2A) lets the Pr.CCIT, CCIT, Pr.CIT or CIT reduce or waive it on three cumulative conditions — genuine hardship, default due to circumstances beyond your control, and cooperation in inquiry and recovery.
Section 244A — interest to you. On refunds out of TDS, TCS or advance tax, one-half per cent for every month or part of a month from 1 April of the assessment year to the date the refund is granted, with a threshold: no interest is payable if the refund is less than 10% of the tax determined. On refunds of self-assessment tax under s.140A, from the later of the date of furnishing the return or the date of payment. In other cases, from the date the tax or penalty was paid. Sub-section (1A) gives an additional 3% per annum where the refund arises from an order under ss.250, 254, 260, 262, 263 or 264. Sub-section (2) excludes any period of delay attributable to you, and the Chief Commissioner or Commissioner decides what that period is.
Two more that show up on the same order. Section 234D charges 0.5% per month where an excess refund was granted, from the date of grant to the date of regular assessment. Section 234F is a fee, not interest — Rs 1,000 where total income does not exceed Rs 5,00,000 and Rs 5,000 otherwise.
Interest is not penalty. Interest under ss.234A, 234B and 234C is mandatory and compensatory: it compensates the revenue for money it should have had earlier. CIT v. Anjum M.H. Ghaswala is the authority for its mandatory character; it cannot be waived except as the CBDT provides. It does not need mens rea, a show cause notice, or a finding of concealment, and it can be charged without a specific direction in the assessment order. Penalty under s.270A is different in kind: 50% of the tax payable on under-reported income, 200% where the under-reporting is in consequence of misreporting under s.270A(9), imposed in separate proceedings, and defensible on merits and on the exclusions in s.270A(6).
On an old demand the interest often exceeds the tax, and people negotiate the tax while ignoring the 1% a month still running under s.220(2). Knowing which head is which tells you what is arguable: 234B and 234C follow arithmetic and rarely fall, but s.220(2) can be waived under s.220(2A), and s.244A interest is a claim you have to make rather than one that appears by itself.
The Commissioner refused to waive the interest on my demand because I own property worth crores. Is owning assets an answer to genuine hardship?
My settlement application was admitted years before the Commission passed its final order — can it charge me section 234B interest for that whole period, and reopen the settled order later to add interest it forgot?
Cash seized in a search was appropriated against a tax liability that the Tribunal later knocked out. The Department has paid me interest from the date of the assessment to the date of refund. Am I entitled to anything for the years before the assessment?
Can interest under ss.234A, 234B and 234C be waived?
The department owes me s.244A interest and has sat on it. Can I claim interest on that interest?
I went to the Settlement Commission. Up to what date can section 234B interest be charged on the income I disclosed there?
The Assessing Officer computed interest under s.234B and s.234C first and only then gave me credit for MAT under s.115JAA. My refund has turned into a demand. Is that the right order?
My Indian payer did not deduct tax at source and paid me gross. The Assessing Officer says I should have paid advance tax and has charged s.234B interest. Which years can he do that for?
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