Interest on self assessment

T. Banusekar

THIS week, `Tax Talk' looks into the different aspects of filing the returns of income, the interest on self-assessment, and payment of advance tax.

At the time of furnishing the return of income (ROI), every assessee is required to compute the tax and interest on the returned income. If any tax or interest is found due, the same has to be paid and proof of such payment furnished along with the ROI. Interest is payable under sections 234A, 234B and 234C. The interest is payable under these sections for the following reasons:

Section 234A -- for default in furnishing the ROI

Section 234B -- for default in payment of advance tax and;

Section 234C -- for deferment of advance tax

In computing these interests, considerable difficulty is faced by the assessee.

Apart from the requirement of having to pay such an interest by way of self-assessment at the time of furnishing the return, these interests may also stand recomputed at the time of assessment or reassessment. This article is intended only to cover the aspect of computation of interest by way of self-assessment at the time of furnishing the ROI. Illustrative examples are given to explain the manner of computation of interest in such cases. For the sake of convenience, surcharge is ignored in these illustrations.

Interest for default in furnishing the ROI

Every assessee is required to furnish a ROI within the due date stipulated by the Act. Where the ROI for any assessment year is furnished after such due date, the assessee shall be liable to pay interest at 1.5 per cent for every month or part thereof (2 per cent up to May 31, 1999). The interest is computed from the period commencing on the date immediately following the due date and up to the date on which the ROI is furnished. The interest at the time of self-assessment has to be computed by reducing from the tax on income returned, the following:

Tax deducted or collected at source.

Advance Tax.

Interest for default in payment of advance tax

Every assessee other than a corporate assessee is required to pay instalments of advance tax as illustrated in table 1.

Any amount paid by way of advance tax on or before March 31 shall also be treated as advance tax paid during the financial year ending on that date for all the purposes of this Act.

Advance tax is computed on the current income and is payable during the financial year in every case where the amount of such tax payable is Rs 5,000 or more. For this purpose the limit of Rs 5,000 is computed by reducing from the tax payable the tax deductible or collectible at source. This interest is computed at 1.5 per cent for every month or part thereof (2 per cent upto May 31, 1999).

The interest shall be computed starting from the first day of April of the relevant assessment year and up to the day on which the tax is paid. For the purpose of computing interest the following are to be reduced from the tax on the income:

Tax deducted or collected at source.

Advance tax.

Self-assessment tax.

The interest under this section shall not be leviable where the advance tax paid is 90 per cent or more of the total amount of advance tax payable.

Interest for deferment of advance tax

Table 1 indicates the due dates of instalments for payment of advance tax.

Failure to pay the advance tax as indicated in the table will warrant levy of this interest. The interest is to be computed at five per cent per month or part thereof for a period of three months on the shortfall in the instalment payable.

This interest will be computed as above only on the shortfall of the first two instalments -- September 15 and December 15. For the last instalment, that is, for the instalment payable on or before March 15, the interest would be payable at 1.5 per cent on the amount of shortfall from the tax due on the returned income.

The shortfall is to be computed by applying the appropriate percentage given in the table, on the tax on returned income as reduced by the tax deductible or collectible at source.

If the shortfall in the payment of tax due on the returned income is on account of:

Under estimation or failure to estimate;

Capital gains or;

Lotteries, cross word puzzles, races including horse race, card games or any other activity in the nature of gambling, betting;

If the assessee has paid the amount of tax payable in respect of such income, as part of the remaining instalments of advance tax which are due or when no instalments are due by March 31 of the financial year, no interest shall be leviable in respect of such shortfall.

Other points

Any amount paid on self-assessment is first adjusted towards interest and the balance, if any, to be adjusted towards tax.

If the tax and interest is not paid before furnishing the ROI, the assessee would be treated as in default and the tax and interest may be recovered as though they were arrears of tax.

Interest for default in payment of advance tax shall not be chargeable if no advance tax is payable by the assessee.

Interest under these sections can be waived or reduced by the Chief Commissioner of Income Tax or Director General of Income Tax under circumstances as stated in circular no.736 dated February 13, 1996.

As stated, this column covers only the method of working interest at the time of self-assessment.

(The author is a Chennai-based practising chartered accountant. This column which normally appears on the first and third Sundays of every month, will appear more frequently due to the large number of queries received.)

Business Line invites queries on personal taxation issues to this column. They will be answered in the first Sunday's issue of Business Line every month. Queries may be addressed to Tax Talk, Business Line, Kasturi Buildings, 859, Anna Salai, Chennai 600 002, or by e-mail to vaidy@thehindu.co.in