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Saturday, May 16, 2015

Chargeability of interest u/s. 234A of the Income Tax Act, 1961 on the self-assessment tax paid before the due date of filing of return

Briefly, let's understand the provision of section 234A of the Income Tax Act, 1961.

Interest is levied at 1% per month or part of a month. The nature of interest is simple interest. In other words, the taxpayer is liable to pay simple interest at 1% per month or part of a month for delay in filing the return of income. Interest under section 234A is levied from the period commencing on the date immediately following the due date of filing the return of income and ending on the date of furnishing the return of income, or in case where no return has been furnished, on the date of completion of the assessment under section 144. 

It should be noted that while computing the period of levy of interest, part i.e. fraction of a month is considered as full month. Interest under section 234A is levied on the amount of tax as determined under section 143(1) and where regular assessment is made, the tax on total income as determined under such regular assessment as reduced by advance tax, tax deducted/collected at source, relief claimed under various sections like sections 90/90A/91 and tax credit claimed under section 115JAA/115JD. 

Hon'ble Supreme Court in the case of CIT Vs. Prannoy Roy, held that the interest payable under the aforesaid provision is payable only on the amount of tax that has not been deposited before the due date of filing the income tax return for the relevant assessment year. 

Accordingly, Board has decided that no interest U/s. 234A is chargeable on the amount of self-assessment tax paid by the assessee before the due date of filing of income tax return. 

Reference:

1. Circular No.2/2015 dated 10th February, 2015 - http://www.incometaxindia.gov.in/communications/circular/circular_2_2015.pdf

2. http://www.incometaxindia.gov.in/tutorials/6-interest%20payable%20by%20the%20taxpayer.pdf

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