With the increase in online income tax return filing, its important that every assessee filing returns online understand the various penalty provisions.
Under the Income Tax Act,
- Tax should be paid proportionately over the course of the year rather than as a lump sum amount at the time of filing of returns
- Tax should be paid in full (100%)
- Income tax teturns should be filed within the due dates specified by the Act
For failure to meet these objectives, the Act lays down penalties under section (u/s) 234 A, 234 B, 234 C, 271 F. Let us look at these individually below:
234 A: Interest for defaults in furnishing return of income
If assessee has not filed income tax return before the due date specified u/s 139(1) of the Income Tax Act (currently 31st July for Individuals; For AY 2012-13 this was extended to 31st August,2012) then assessee is liable to pay penalty u/s 234 A
Penalty amount: Simple interest of 1% on outstanding tax liability.
Example: Assessee is filing return two months after due date and has Rs. 1,000/- as outstanding tax liability. In this case penalty u/234 A would be 1,000 * 1% * 2 = Rs. 20/- .
Note: This implies if assessee has no outstanding tax liability (for the year for which assessee has delayed tax return beyond the due date), then assessee is not liable to any penalty u/s 234 A.
234 B: Interest for defaults in payment of advance tax
Where the tax paid by the assessee before 31st March of the financial year is less than 90% of the total tax liability for the financial year, the assessee will be liable to pay penalty u/s 234 B.
Thus, if at the time of filing your return you have outstanding tax liability and this is more than 10% of your tax liability, then you have to pay penalty u/s 234 B.
Penalty amount: Simple interest of 1% from 1st day of assessment year (1st April) to date of payment of tax.
Example: Assessee is filing return in June of the assessment year and had paid less than 90% of tax by 31st March of financial year. His outstanding tax liability is Rs. 2,000/- .
In this case penalty u/234 B would be 2,000 * 1% * 3 = Rs. 60/- .
234 C: Interest for deferment of advance tax
Where the assessee has not paid his tax on pro-rata basis over the course of the financial year, the assessee has to pay interest u/s 234 C.
Persons other than companies have to pay advance tax if their total tax liability for the financial year is more than Rs. 10,000/-. Such persons have to pay advance tax in three instalments.
- 30% of total tax liability by 15th September of financial year
- 60% of total tax liability by 15th December of financial year
- 100% of total tax liability by 15th March of financial year
Penalty amount: Simple interest @1% per month for 3 months for short payment in first and second instalments and 1% for one month in case of 3rd instalment.
If the assessee was liable to pay Rs 20,000/- in tax for the financial year, then the assessee should pay Rs, 6,000/- by 15th September, Rs 12,000/- by 15th December and Rs 20,000/- by 15th March.
And, if the assessee actually paid Rs. 2,000/- on 15th September, Rs 8,000/- on 15th December, Rs. 5,000 by 15th March and Rs. 5,000/- by 31st March.
Then, penalty u/s 234 C will be as follows:
- 1st instalment -> 1% on shortfall of Rs. 4,000/- (6,000 – 2,000) for 3 months= Rs. 120/-
- 2nd instalment -> 1% on shortfall of Rs 2,000/- (12,000 – 2,000 – 8,000) for 3 months = Rs. 60/-
- 3rd instalment -> 1% on shortfall of Rs 5,000/- (20,000 – 2,000 – 8,000 – 5,000) for 1 month = Rs. 50/-
- Total penalty u/s 234 C = 120 + 60 + 50 = Rs. 230/-
271 F: Penalty for failure to furnish return of income
If the assessee has filed return after 31st March of the assessment year then the assessing officer (AO) may direct the assessee to pay a penalty of Rs. 5,000/-
This penalty is at the discretion of the AO and is NOT to be paid at the time of filing your return. The liability to pay this penalty only arises if the AO imposes the penalty on the assessee. Further where the assessee has had valid reasons for delay in filing return, no penalty shall be imposed (Sec 273 B)
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