Taxpayers still need to pay interest despite extension of filing dates

The government may have extended the due date for filing Income Tax returns on account of the difficulties being reported by the taxpayers in the electronic filing of returns owing to the glitches in the Tax Portal, but taxpayers may still be required to pay additional interest at the rate of 1 percent per month despite filing the return in the extended period in case the balance tax payable exceeds Rs 1 lakh.

As per the clarification appended to the Circular extending the dates for filing tax returns, it has been clarified that the extension of the due date shall not be applicable in respect of the provision of section 234A.

The implication of this will be that despite filing the return for an extended period, the taxpayers shall be required to pay additional interest at the rate of 1 percent per month from the original due date of filing the tax return i.e. July 31, 2021, in the case of ordinary taxpayers and October 31 in the case of taxpayers who are required to get their accounts audited, in case the balance amount of tax payable i.e. self-assessment tax payable exceeds Rs 1 lakh.

Though the government has extended the due date of filing return but has specifically provided that despite the extension of the due date, interest at the rate of 1 percent shall be required to be paid in case the balance tax payable exceeds Rs 1 lakh.

"Technically, the only relief by this Circular is non-levy of fee of Rs 5,000 for late filing of return under section 234F of the Act. It may be relevant to point out that in the case of those taxpayers who are liable to pay advance tax and where such advance tax falls short of the 90 percent of assessed tax i.e. tax on total income as reduced by TDS, such taxpayers are also required to pay normal interest at the rate of 1 percent per month under section 234B of the Act from April 1," eminent tax expert Ved Jain said.

"Accordingly, the implication of this extension will mean that a taxpayer who is liable to pay advance tax will have to pay interest at the rate of 2 percent per month (1 percent under section 234B and 1 percent under section 234A) from the original due date of filing of return i.e. July 31 or October 31, as the case may be," he added.

Further, even the taxpayers who are not required to pay advance tax but have a self-assessment tax liability exceeding Rs 1,00,000 will also be required to pay interest at the rate of 1 percent from the original due date i.e. July 31 or October 31, as the case may be, under section 234A of the Act.

It is to be noted that interest under section 234A at the rate of 1 percent in case of late filing of return is in fact a penalty. Before the amendment made by the Direct Tax Laws (Amendment) Act, 1987, there used to be a penalty at the rate of 2% per month for late filing of return under section 271(1)(a) of the Act.

The above Amendment Act in order to simplify the tax provision has substituted this penalty by interest under section 234A of the Act.

Accordingly, to levy such interest, which in fact is a penalty for late filing of the return, when the due date has been extended, not because the taxpayer was not prepared to file the return but because of the difficulties in electronic filing of the return on the Tax Portal, is not justified, Jain said.

It may be relevant to note that in case self-assessment tax is paid before the original due date, then there shall be no liability to pay interest under section 234A of the Act. From this, it follows that the intention of the CBDT is to extend only the due date of filing of return but not to extend the date of making payment of self-assessment tax.

Several taxpayers have faced delays in the timely filing of returns due to glitches in the new tax portal.

In the above circumstances, when the delay in payment of tax cannot be attributed to the taxpayer, it would not be justified to levy this additional interest, which is more in the nature of a penalty, at the rate of 1 percent per month from the due date of filing return, said Jain.