Thursday, December 18, 2014

Service Tax on Commission Agent Service on Import-Export of Goods


In order to promote the Exports, Government of India has given big relief to industries in India, by exempting the service tax on commission paid to overseas agent for Export of Goods vide Notification No 14/2014 ST dated 11th July 2014. It was welcome and much needed move, considering global completion. 

Earlier exemption was there on Commission paid to overseas agent for Export of Goods but it was conditional and upto prescribed limited. But now from 1st October 2014, it is out of purview of service tax.

Mobile phone charger is not a part of mobile phone :Supreme Court


Hon’ble Supreme Court has delivered a landmark verdict in the matter of STATE OF PUNJAB & ORS. v. NOKIA INDIA PVT. LTD. & pronounced that the mobile/cell phone charger is an accessory to cell phone and is not a part of the cell phone.

Brief facts of the case:

The matter pertains to the Punjab VAT Act, 2005 wherein the cellular telephones at allowed to be taxed at a concessional rate. M/s Nokia India Pvt. Ltd. deals in selling of mobile phones and mobile chargers. It paid concessional tax on chargers as well. The Assessing Authority held that the mobile chargers are the accessories, hence full rate of tax was supposed to be levied thereupon. The matter went to appeal. The Deputy Commissioner(Appeals) as well as Tribunal upheld the stand taken by the assessing authority.

However, the P&H High Court took the contradictory view stating that battery charger is a part of the composite package of cell phone.

Aggrieved by the order of High Court, govt. filed an appeal before the Apex Court. 

M/s Nokia contended that charger is an integral part of the cell phone and the cell phone cannot be operated without the charger and when any person comes for cell phone, he purchases the cell phone and then automatically takes away the charger for which no separate money is charged.

Conclusion:

The court held that battery charger cannot be held to be a composite part of the cell phone but is an independent product which can be sold separately, without selling the cell phone.

The said verdict may be accessed from the link hereinbelow:


Comment:

It will be a setback for the industry(especially operating in Punjab VAT). It would be interesting to note whether the said interpretation shall be referred to the Constitutional Bench at a later stage or not!

Sumit Grover
Chartered Accountant
+91-9910946323 
[email protected]

Clarifications on Pradhan Mantri Jan Dhan Yojana (PMJDY)


Ministry of Finance Issues Clarifications with Regard to Different Aspects of the Pradhan Mantri Jan Dhan Yojana (PMJDY) Including about Availing of Benefits Under the Yojana 

Various queries or questions have been raised from time to time with regard to different aspects of the Pradhan Mantri Jan Dhan Yojana (PMJDY). The Ministry of Finance has responded to those queries and issued various clarifications in that regard from time to time.

Now the Ministry of Finance has further issued the following clarifications for the benefit of account holders under PMJDY:-

I. Frequently Asked Questions (FAQs) on the Yojana are available on the website www.pmjdy.gov.in.

II. A person who is already having a bank account with any bank NEED NOT to open a separate account under PMJDY. He/she will just have to get issued a RuPay Card in his existing account to get benefit of accidental insurance. Over draft facility can be extended in the existing account if it is being operated satisfactorily.

III. Accidental Insurance coverage under PMJDY

  • o Accidental insurance of Rs.1 lakh is available to all RuPay card holders in the age group of 18-70 where RuPay card need to be used once in 45 days of receipt.
  • o Claim intimation should be given his or her bank where account is maintained within 30 days from the date of accident.
IV. Life Insurance coverage under PMJDY

Basic eligibility conditions:-

  • o Persons opening bank account for the first time, with RuPay card in addition, during the period from 15thAug 2014 to 26th January 2015.
  • o The persons should normally be Head of the family or an earning member of the family and should be in the age group of 18-59.
  • o Account holder need to have valid RuPay card.
  • o The account can be any bank account including a small account.
  • o Only one person in the family will be covered and in case of the person having multiple cards / accounts, the benefit will be allowed only under one card i.e. one person per family will get a single cover of Rs. 30,000/-, subject to eligibility conditions.
  • o The claim of Rs.30,000/- is payable to the nominee(s) of account holder who need to submit necessary documents to the Nodal Branch of the concerned Bank.
  • o Government employees (serving/retired) and their families, persons filing Income Tax Return/TDS deductees and persons covered under the Aam Adami Bima Yojana, are ineligible for Life insurance under PMJDY.

NEW RPU and FVU to be released on 20.12.2014 by TIN-NSDL for ETDS retruns


It is proposed to release new version of NSDL Return Preparation Utility (RPU) and File Validation Utility (FVU) incorporating the below features:

Features of NSDL RPU
·         Allow update in field in Form no. 27Q “Whether TDS rate of TDS is IT act (a) and DTAA (b)” where the tax has been deducted at higher rate.
·         Incorporation section code:
o   “194LBA” & “194DA” have been added for below forms which will be applicable for a statement pertaining to FY 2014-15 & Q3 onwards.
o   Section code 194LBA will be applicable for Form 26Q and 27Q.
o   Section code 194DA will be applicable only for Form 26Q.
o   For section code “194LBA”, select “4BA” from the dropdown of section code column in Annexure I sheet.
o   For section code “194DA”, select “4DA” from the dropdown of section code column in Annexure I sheet.
·         Latest FVU versions incorporating latest validations.

Features of FVU
·         Incorporation section code“194LBA” & “194DA” for Form 26Q
·         The said section codes will be applicable for TDS statement pertaining to FY 2014-15 (Q3 onwards).

Utilities incorporating the above features will be available for download at TIN website (www.tin-nsdl.com) from download section on December 20, 2014.

Wednesday, December 17, 2014

Cenvat credit on ‘Outdoor Catering Services’ eligible for Input Service


Cenvat credit on ‘Outdoor Catering Services’ used in relation to business activities continues to be an eligible Input Service even after amendment in the definition of ‘Input services’w.e.f April 1, 2011
We are sharing with you an important judgment of the Hon’ble CESTAT, Mumbai, in the case of Hindustan Coca Cola Beverages Pvt. Ltd. Vs. Commissioner of Central Excise, Nashik [Order No: A/1479 – 1480/14/SMB/C- IV]on following issue:
Issue:
Whether Cenvat credit on Outdoor Catering services, used in relation to business activities is eligible after amendment in the definition of ‘Input services’w.e.f April 1, 2011?
Facts & background:
In the instant case, Hindustan Coca Cola Beverages Pvt. Ltd. (“the Appellant”) availed Cenvat credit on Outdoor Catering services for the period December, 2011 to December, 2012, which was denied by the Lower Authorities and the Ld. Commissioner (Appeals) on the ground that the definition of Input services given under Rule 2(l) of the Cenvat Credit Rules, 2004 (“the Credit Rules”) has been amended w.e.f April 1, 2011 to specifically exclude any Input service used for personal use or consumption by any employee.
Being aggrieved, the Appellant preferred an appeal before the Hon’ble CESTAT, Mumbai, and relying upon Circular D.O.F No. 334/3/2011-TRUdated February 28, 2011and Circular No. 943/4/2011-CX dated April 29, 2011, submitted the following:
·      Outdoor Catering service is used by the Appellant in relation to carrying out the business of manufacturing of excisable goods;
·      Cenvat credit has been claimed only to the extent the cost of such expenses are borne by the Appellant and not recovered from the employees;
·      Outdoor Catering services per se is not ineligible Input services but it is not eligible for Cenvat credit only when it is used for personal use or consumption of any employee or a sub-group of employee;
·      Deletion of the word ‘activities relating to business’ from the definition of Input services and adding of specific clauses of inclusion and exclusion is only to make it explicit what was already implicit. Accordingly, all Input services used for business continue to be eligible for Cenvat credit unless excluded specifically.
Held:
The Hon’ble CESTAT, Mumbai observed the following:
·      Rule 2(l) of the Credit Rules specifically uses the words ‘used primarily for personal use or consumption of any employee’, which should be given due effect;
·      Outdoor Catering services is used by the Appellant in relation to their business activities and the same is used by all employees in general;
·      The Government while issuing the Budget clarification or subsequent Circulars has clarified that what is not eligible is the Input services meant for personal use or consumption of any employee or the cost of which is included as part of salary of the employee as a cost to Company basis;
Therefore, on the basis of above, the Hon’ble Tribunal held that since in the instant case, Outdoor Catering services are used by the Appellant in relation to their business activities, cost of which is borne by the Appellant and not by the employees, they are rightly entitled to claim Cenvat credit of the same.
Bimal Jain
FCA, FCS, LLB, B.Com (Hons)
Flat No. 34B, Ground Floor, Pocket - 1, MayurVihar, Phase - I,Delhi – 110091, India
Desktel: +91-11-22757595/ 42427056 Mobile: +91 9810604563

Download free E book Compendium of service tax law By KPMG


Service tax is a complex subject and is rapidly evolving. The service tax law is amended almost every year by bringing different services under the service tax net, with existing services crossing 100 mark. Further, various sets of rules dealing with credit mechanism, exports, imports, valuation, etc issued from time to time necessitating a comprehensive compilation of service tax. Therefore it is indeed a great effort to compile all the relevant facets of the service tax legislation comprehensively. A publication of such nature providing a quick reference to service tax legislation will be of great help to all the concerned.

This Book Contains
  1. Service Tax act
  2. Service Tax rules
  3. Key provisions of service tax at a glance
  4. Cenvat credit rules
  5. Place of provision of service rules
  6. Service Tax determination of value rules
  7. Point of taxation rules
  8. VCES
  9. Effective rate of tax
  10. Services Codes
  11. Mega exemption
  12. Reverse charge Mechanism

CBDT notifies limit of 50% Govt. grant for deeming university/hospitals as substantially funded by Govt.


NOTIFICATION
INCOME-TAX
New Delhi, the 12th December, 2014

S.O. 3168 (E). – In exercise of the powers conferred by section 295 read with sub-clauses (iiiab) and
(iiiac) of clause (23C) of section 10of the Income-tax Act, 1961 (43 of 1961), the Central Board of
Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-

1. (1) These rules may be called the Income-tax (13th Amendment) Rules, 2014.
(2) They shall come into force from the date of their publication in the Official Gazette.

2. In the Income-tax Rules, 1962, after rule 2BBA the following rule shall be inserted, namely:-

“ 2BBB.Percentage of Government Grant for considering university, hospital etc. as
substantially financed by the Government for the purposes of clause (23C) of section 10.

For the purposes of sub-clauses (iiiab) and (iiiac) of clause (23C)of section 10, any university or other educational institution, hospital or other institution referred therein, shall be considered as being substantially financed by the Government for any previous year, if the Government grant to such university or other educational institution, hospital or other institution exceeds fifty percent. of the total receipts including any voluntary contributions, of such university or other educational institution, hospital or other institution, as the case may be, during the relevant previous year.”.

[Notification No.79 /2014/F.No.142/12/2014-TPL]

(Ashish Kumar)
Director (Tax Policy and Legislation)
Note. - The principal rules were published in the Gazette of India vide notification number S.O. 969 (E) dated the 26th March, 1962 and was last amended by the Income- tax Rules, vide notification S.O. No.3015 dated 28th November, 2014. 

Tuesday, December 16, 2014

Benefit of Abatement is available in respect of Interior Works on existing buildings


Recently, the Mumbai CESTAT in the case of The Carpenters v Commissioner of C.Ex & ST, Pune-III/Mumbai-III 2014 (36) STR 1137 (Tri-Mumbai) has held that activities undertaken on existing building which is in already in use, the same would amount to renovation or restoration or alteration or repair as per the definition under Section 65(25b) of the Finance Act, 1994.

In the present case, the Appellant is engaged in activities of interior work such as plastering of walls, tiling of floors, carpentry work, partition work, work relating to bathrooms/toilets etc. and it was question for decision whether the activities undertaken by the Appellant would fall under clause (d) of Section 65 (25b) of the Finance Act, 1994 as claimed by the Appellant of would fall under the clause (c) of the said Section 65 (25b) of the Finance Act, 1994 as claimed by the Revenue.

Clause (c) and (d) of Section 65(25b) is reproduced below:-

“Commercial or Industrial Construction” means:
(c) completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic application or fittings and other similar services, in relation to building or civil structure; or
(d) repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit, which is-
i. used, or to be used, primarily for; or
ii. occupied, or to be occupied, primarily with; or
iii. engaged, or to be engaged, primarily in,
commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, rail-ways, transport terminals, bridges, tunnels and dams.

It was observed by the Hon’ble CESTAT that activities of repair, alteration, renovation or restoration undertaken by the Appellant comes under clause (d) and not under clause (c) and, therefore, the Appellant is eligible for the benefit of Notification No. 1/2006-ST and to attract clause (c) the same has to be undertaken in respect of new or unfinished building.

Further it was also observed, that if the contract were entered into prior to 1 June 2007, they would be governed by the provisions of Section 65(25b) of the Finance Act, 1994 relating to ‘Commercial or Industrial Construction Service’. Whereas, if the contract were entered into on or after 1 June 2007, then in that case they would be covered under the provision of ‘Work Contract Service’.

Atul Kumar Gupta
B Com (Hons) FCA, FCMA, MIMA, CIQA, PGDEMM
Central Council Member of ICAI (2013-16)
Former Chairman NIRC of Institute of Chartered Accountants of India
Former Chairman NIRC of Institute of Cost Accountants of India
Author of “An Introduction to Service Tax” & “Comprehensive Guide to Service Tax”

Sunday, December 14, 2014

Deduction u/s 80CCD for CPF /NPS upper Limit One Lakh only ?


Section 80CCD(1) allows an employee, being an individual employed by the Central Government  on or after 01.01.2004, or by any other employer ,or any other assessee being an individual, a deduction of an amount paid or deposited out of his income chargeable to tax under a pension scheme as notified vide Notification F. N. 5/7/2003- ECB&PR dated 22.12.2003 (National Pension System –NPS) or as may be notifed by the Central Government.

In Finance Act, 2014 ,Finance Minister has increased the Overall Saving Limit for Section 80C,80CCC and 80CCD(1) from Rs 1,00,000/- earlier to Rs 1,50,000/-  wef  financial year 2014-15. But many of you may not aware of that the upper limit of Rs 1,50,000/- is not available for contribution made by employee /Self employed in Contributory pension Scheme(CPF) /National Pension scheme(NPS) u/s 80CCD for financial year 2014-15 onwards.

In Finance Act,2014,an internal limit of Rs 1,00,000/- has been fixed u/s 80CCD(1).So Central/State Government or any other employee contributing to the NPS/CPF can claim maximum deduction of Rs 1,00,000/- for financial year 2014-15 onwards .However such person can claim deduction of Rs 1,50,000/- through other scheme available u/s 80C like PPF ,ELSS,NSC etc.

Tax treatment of the Contribution in NPS/CPF

Tax treatment for Employee 

Employee Contribution :Employee's contribution is eligible for deduction u/s 80CCD(1) subject to maximum 10% of salary (includes Dearness Allowance but excludes all other allowance and perquisites). The deduction under section 80CCD(1) shall not exceed Rs. 1,00,000/-.

Employer's contribution : Contribution by Govt /Employer to New Pension scheme /Contributed Pension scheme is taxable in the hand of Employee as perquisites . Any contribution made by the Central Government or any other employer to the account of the employee under the New Pension Scheme as notified vide Notification F.N. 5/7/2003- ECB&PR, dated 22- 12-2003 referred to in section 80CCD shall also be included in the salary income.

However the contribution made by the Central Government or any other employee to a pension scheme u/s 80CCD(2) shall be excluded from the limit of Rs.1,50,000/- provided under section 80CCE.

Judiciary Appointed, Government Disappointed “CA/CMA


Controversial and debated issue of whether board (CBEC) has power to conduct service tax audit of assessee has gone into various folds recently, but now it has got finality.Department has initiated and conducted Service Tax Audit of many assessees. How ever there was no explicit powers given under Finance Act 1994 to conduct the service tax audit by department officials, unlike in case of Central Excise Audit as per Section 37(2)(x) of the Central Excise Act, 1944 to be conducted by Excise Department or Special Audit of Service Tax as per Section 72A of Finance Act 1994 to be conducted by CA/CMA .Hence this issue has put before judiciary to decide the impugned power of department to initiate and conduct the Service Tax Audit. High court wherein said that the issue was under consideration, has stated that department does not have authority to initiate and conduct Service Tax Audit and same is to be carried out as per Section 72A by CA/CMA.

Section 94 of Finance Act 1994 has given power to Central Government to make Rules. Said section was not empowering government to frame the rule to authorize department to conduct service tax audit by departmental officer till 6th August 2014.However Rule 5A of Service Tax Rules 1994 has vested the power to the Commissioner to appoint audit party consisting of departmental officer to conduct verification/scrutiny of records of assesses. Hence judiciary in below mentioned case,decided that Rule 5A of Service Tax Rules 1994 is ultra vires to the provisions of Finance Act 1994 and same is to be quashed away.

Saturday, December 13, 2014

Interest on Advance Tax Late deposit u/s 234A 234B 234C (How to Calculate)


INTEREST PAYABLE BY THE TAXPAYER UNDER THE INCOME-TAX ACT

Introduction

Under the Income-tax Act, different types of interests are levied for various kinds of delays/defaults. In this part, you can gain knowledge about the provisions of section 234A, 234B and 234C dealing with interest levied for 
(i) delay in filing the return of income; section 234A
(ii) non-payment or short payment of advance tax; and 234B
(iii) non-payment or short payment of individual instalment or instalments of advance tax (i.e., deferment of advance tax).234C

Manner of computation of interest under the Income-tax Act

Before understanding the provisions of section 234A, 234B and 234C it is important to understand the provisions of Rule 119A which gives the manner of computation of interest under the Income-tax Act.

As per Rule 119A, while calculating the interest payable by the taxpayer or the interest payable by the Central Government to the taxpayer under any provision of the Act, the following rule shall be followed :

a) where interest is to be calculated on annual basis, the period for which such interest is to be calculated shall be rounded off to a whole month or months. For this purpose any fraction of a month shall be ignored and the period so rounded off shall be deemed to be the period in respect of which the interest is to be calculated;

b) where the interest is to be calculated for every month or part of a month comprised in a period, any fraction of a month shall be deemed to be a full month and the interest shall be so calculated;

c) the amount of tax, penalty or other sum in respect of which such interest is to be calculated shall be rounded off to the nearest multiple of one hundred rupees. For this purpose, any fraction of one hundred rupees shall be ignored and the amount so rounded off shall be deemed to be the amount in respect of which the interest is to be calculated.

E.g. If we want to compute interest under section 234A on Rs. 8,489 for 3 months and 10 days, then as per Rule 119A discussed above, while computing the amount liable to interest, any fraction of Rs. 100 is to be ignored and, hence, we will ignore Rs. 89 and the balance amount will come to Rs. 8,400. Interest will be computed on Rs. 8,400. Further, the period of 10 days will be considered as full month and, hence, interest will be computed for 4 months.

Interest for delay in filing the return of income [Section 234A]

Under section 234A, interest is levied for delay in filing the return of income.Basic provisions  Interest under section 234A is levied for delay in filing the return of income. In other words, if the taxpayer files the return of income after the due date specified in this regard, interest under section 234A will be levied.

Illustration

Mr. Kapoor is a doctor. His tax liability for the financial year 2014-15 amounted to Rs. 8,400. The due date of filing the return of income in his case is 31st July, 2015. On 5th August, 2015 he paid tax of Rs. 8,400 and filed his return of income. Will he be liable to pay interest under section 234A?

**

Interest under section 234A is levied for delay in filing the return of income. The due date for filing the return of income in the case of Mr. Kapoor is 31st July, 2015 and he has paid the tax and filed the return on 5th August 2014. Hence, he will be liable to pay interest under section 234A on the outstanding tax liability (provisions relating to rate of interest, period of levy of interest and amount liable to interest are discussed later).

Rate of interest

Interest under section 234A is levied for delay in filing the return of income. 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.

Period of levy of interest under section 234A

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.

Illustration

Mr. Sunil is an engineer. The due date of filing the return of income in his case is 31st July, 2014. He filed his return of income on 9th December, 2014. His tax liability for the financial year 2013-14 is Rs. 8,400 (which is paid on 9th December, 2014). Will he be liable to pay interest under section 234A, if yes then what will be the period of levy of interest?

**

The due date of filing the return of income is 31st July, 2014, and return of income is filed on 9th December, 2014 i.e. after the due date and hence, Mr. Sunil will be liable to pay interest under section 234A.While computing interest, part of the month will be taken as full month. In this case, there is a delay of 4 months and 9 days. Part of the month i.e. 9 days will be considered as full month and hence, interest will be levied for 5 months.

Amount liable to interest under section 234A

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.

Illustration

Mr. Kumar is running a medical store. The due date for filing the return of income in his case is 31st July. He filed his return of income on 3rd December. Tax liability of Mr. Kumar for the year is Rs. 28,400 (which is paid on 3rd December). Advance tax paid by him is Rs. 15,000 and he has TDS credit of Rs. 5,000. Will he be liable to pay interest under section 234A, if yes then how much?

**

Mr. Kumar has filed his return of income after the due date i.e. after 31st July and hence, he will be liable to pay interest under section 234A. Interest will be levied at 1% per month or part of the month.
The due date of filing the return of income is 31st July and the return of income is filed on 3rd December and hence, there is a delay of 4 months and 3 days. Part of the month i.e. 3 days will be considered as full month and hence, interest will be charged for a period of 5 months. Interest will be levied at 1% per month on Rs. 8,400 (*) for 5 months. Thus, interest under section 234A will come to Rs. 420. 

(*) Advance tax of Rs. 15,000 and TDS of Rs. 5,000 are to be deducted from the tax liability of Rs. 28,400, hence, net liability after deducting advance tax and TDS will come to Rs. 8,400. Thus, interest will be levied on Rs. 8,400.

Interest for default in payment of advance tax [Section 234B]

Section 234B provides for levy of interest for default in payment of advance tax. 

Basic provisions

Interest under section 234B is levied in following two cases: 

a) When the taxpayer has failed to pay advance tax though he is liable to pay advance tax; or

b) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax (meaning of assessed tax is discussed later). As per Section 208 of the Act, advance tax shall be payable by the taxpayer during the financial year if estimated tax liability of assessee during that year is ten thousand rupees or more.

Illustration

Mr. Khushal is running a provision shop. Tax liability of Mr. Khushal for the year is Rs. 38,400. He has not paid any advance tax till 31st March. Entire tax was paid by him at the time of filing the return of income. Will he be liable to pay interest under section 234B?

**

Interest under section 234B is levied in following two cases: 

a) When the taxpayer has failed to pay advance tax; or

b) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax.

As per section 208 every person whose estimated tax liability for the year is Rs. 10,000 or more, shall pay his tax in advance in the form of “advance tax”. 

The tax liability of Mr. Khushal is Rs. 38,400 (i.e., not less than Rs. 10,000), thus, he is liable to pay advance tax. However, he has not paid any advance tax and, hence, he will be liable to pay interest under section 234B (provisions relating to period of interest, rate of interest and amount on which interest is levied are discussed in later part).

Illustration

Mr. Mangal is running a provision shop. Tax liability of Mr. Mangal for the year is Rs. 48,400. He has paid advance tax of Rs. 46,000 till 31st March. Balance tax of Rs. 2,400 is paid by him at the time of filing the return of income. Will he be liable to pay interest under section 234B?

**

Interest under section 234B is levied in following cases: 

(a) When the taxpayer has failed to pay advance tax; or 

(b) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax.

In this case, Mr. Mangal has paid 95% of the advance tax (*) i.e. more than 90% and thus, no interest will be levied under section 234B.

(*) The tax liability of Mr. Mangal is Rs. 48,400 and he has paid advance tax of Rs. 46,000. The quantum of advance tax paid by him will come to 95% (i.e., Rs. 46,000/Rs. 48,400) of the total tax liability.

Illustration

Mr. Raja is engaged in furniture business. Tax liability of Mr. Raja for the year is Rs. 58,400. He has paid advance tax of Rs. 35,000 till 31st March. Balance tax of Rs. 23,400 is paid by him at the time of filing the return of income. Will he be liable to pay interest under section 234B?

**

Interest under section 234B is levied in following cases: 

(a) When the taxpayer has failed to pay advance tax; or 

(b) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax. 

In this case, Mr. Raja has paid advance tax of Rs. 35,000. The quantum of advance tax paid by him is 60% of the total tax liability (*) i.e. less than 90% and hence, he will be liable to pay interest under section 234B.

(*) The tax liability of Mr. Raja is Rs. 58,400 and he has paid advance tax of Rs. 35,000. The quantum of advance tax paid by him will come to 60% (i.e., Rs. 35,000/Rs. 58,400) of the total tax liability.

Rate of interest

Under section 234B, interest for default in payment of advance tax 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 default in payment of advance tax.

Amount liable for interest

Interest under section 234B is levied on the amount of unpaid advance tax. If there is a shortfall in payment of advance tax, then interest is levied on the amount by which advance tax is short paid. The amount of unpaid/short paid advance tax is computed as follows :

Particulars Amount

Assessed tax (*) XXXXX

Less : Advance tax paid (if any) (XXXXX)

Amount of unpaid/short paid advance tax XXXXX

(*) Assessed tax means 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 tax deducted/collected at source, relief/deduction of tax claimed under various sections like sections 90/90A/91 and tax credit claimed under section 115JAA/115JD.

Period of levy of interest

Interest under section 234B is levied from the first day of the assessment year, i.e., from 1st April till the date of determination of income under section 143(1) or when a regular assessment is made, then till the date of such a regular assessment.

If the taxpayer has paid any tax before completion of assessment, then interest will be levied as follows:

(a) Upto the date of payment of self assessment tax, interest will be computed on the amount of unpaid advance tax.

(b) From the date of payment of self assessment tax, interest will be levied on the unpaid amount of advance tax after deducting the self assessment tax paid by the taxpayer.

Illustration

Mr. Suraj is a businessman. His tax liability as determined under section 143(1) is Rs. 28,400. He has not paid any advance tax but there is a TDS credit of Rs. 10,000 in his account. He has paid the balance tax on 31st July i.e. at the time of filing the return of income. Will he be liable to pay interest under section 234B, if yes, then how much? 

**

In this case, the tax liability (after allowing credit of TDS) of Mr. Suraj comes to Rs. 18,400 (i.e. Rs. 28,400 – Rs. 10,000) which exceeds Rs. 10,000 and hence, he will be liable to pay advance tax. He has not paid any advance tax and hence, he will be liable to pay interest under section 234B. Interest under section 234B will be levied at 1% per month or part of the month. In this case, Mr. Suraj has paid the outstanding tax on 31st July and hence, interest under section 234B will be levied for the period from 1st April to 31st July i.e. for 4 months.

Interest will be levied on unpaid tax liability of Rs. 18,400. Interest at 1% per month on Rs. 18,400 for 4 months will come to Rs. 736. 

Interest for default in payment of instalment(s) of advance tax [Section 234C] Section 234C provides for levy of interest for default in payment of instalment(s) of advance tax. Before getting into the detailed provisions of section 234C, lets recall the provisions relating to payment of advance tax by a taxpayer.

As per section 208, every person whose estimated tax liability for the year exceeds Rs. 10,000, shall pay his tax in advance in the form of “advance tax” by following dates : 

                                                      Non-Corporatetaxpayers                       Corporatetaxpayers
Status By 15 th                                       Nil                                                     15%

June By 15 th                                    Upto 30% of advance tax                         45%

Sept. By 15 th                                   Upto 60% of advance tax                         75%

Dec. By 15 th March                       Upto 100% of advance tax                      100%


Any tax paid till 31st March will be treated as advance tax.

Basic provisions

Interest under section 234C is levied, if advance tax paid in any instalment(s) is less than the required amount. In other words, interest under section 234C in case of deferment of different instalments of advance tax is levied in following cases: 

1) In case of corporate taxpayers i.e. companies, interest is levied under section 234C, if the advance tax paid by the taxpayer on or before June 15th is less than 12% of advance tax payable.

2) Interest under section 234C is levied if the advance tax paid by the taxpayer on or before September 15th is less than 30% of advance tax payable by him (in case of a non-corporate taxpayer) or 36% of advance tax payable (in case of a corporate taxpayer).

3) Interest under section 234C is levied if the advance tax paid by the taxpayer on or before December 15th is less than 60% of advance tax payable by him (in case of a non-corporate taxpayer) or 75% of advance tax payable (in case of a corporate taxpayer).

4) Interest under section 234C is levied if the advance tax paid by the taxpayer on or before March 15th is less than 100% of advance tax payable by him (in case of a corporate as well as non-corporate taxpayer).

No levy of interest if shortfall in payment of advance tax is due to capital gains or winning from lottery, etc.

Interest under section 234C is not levied, if, the shortfall in payment of advance tax is due to failure to estimate the amount of capital gains or income referred to in section 2(24)(ix) (i.e. winning from lotteries, crossword puzzle, etc.) and the taxpayer pays the required advance tax on such income as a part of immediate following instalments or till 31st March, if no instalment is pending.

Rate of interest

Interest under section 234C for default in payment of instalment(s) of advance tax is charged 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 @ 1% per month or part of a month for short payment/ non-payment of individual instalment(s) of advance tax. 

Period of levy of interest

In case of corporate taxpayer, interest under section 234C is levied for a period of 3 months, in case of short fall in payment of 1st, 2nd and 3rd instalment and for 1 month, in case of short fall in payment of last instalment.

In case of non-corporate taxpayer, interest under section 234C is levied for a period of 3 months, in case of short fall in payment of 1st and 2nd instalment and for 1 month in case of short fall in payment of last instalment. 

Amount liable for interest

Interest under section 234C is levied on the short paid amount of instalment(s) of advance tax.

Illustration

Mr. Khushal is running a garments shop. Tax liability of Mr. Khushal is Rs. 38,400. He has paid advance tax as given below:

 Rs. 15,000 on 15th September,

 Rs. 5,000 on 15th December,

 Rs. 18,400 on 15th March.

Will he be liable to pay interest under section 234C, if yes, then how much?

**

As per section 208, every person whose estimated tax liability for the year exceeds Rs. 10,000, shall pay his tax in advance in the form of “advance tax” by following dates :

                                                      Non-Corporatetaxpayers                       Corporatetaxpayers
Status By 15 th                                       Nil                                                     15%

June By 15 th                                    Upto 30% of advance tax                         45%

Sept. By 15 th                                   Upto 60% of advance tax                         75%

Dec. By 15 th March                       Upto 100% of advance tax                      100%
Considering the above dates, the advance tax liability of Mr. Khushal at different instalments will be as follows:

1) 1) In first instalment: Not less than 30% of tax payable should be paid by 15th September. The tax liability is Rs. 38,400 and 30% of 38,400 amounts to Rs. 11,520. Hence, he should pay Rs. 11,520 by 15th September. He has paid Rs. 15,000, hence, there is no short payment in case of first instalment.2) In second instalment: Not less than 60% of tax payable should be paid by 15th December. Tax liability is Rs. 38,400 and 60% of 38,400 amounts to Rs. 23,040.

Hence, he should pay Rs. 23,040 by 15th December. He has paid Rs. 15,000 till 15th September and Rs. 5,000 on 15th December (i.e. total of Rs. 20,000 is paid till 15th December), thus, there is a short payment of Rs. 3,040 (i.e. Rs. 23,040 – Rs. 20,000). Hence, he will be liable to pay interest under section 234C on account of short fall of Rs. 3,040 (*).

3) In last instalment : 100% of tax payable should be paid by 15th March. The balance amount is paid by 15th March and hence, there is no short payment in case of last instalment and thus, Mr. Khushal will not be liable to pay interest Under section 234C in case of last instalment.

(*) There is a short fall in case of second instalment of Rs. 3,040 (computation already  discussed). Due to short fall in case of second instalment, interest under section 234C will be levied. Interest will be levied at 1% per month or part of the month on the short paid amount of Rs. 3,000 (i.e. Rs. 3,040 rounded off to Rs. 3,000 as per rule 119A). Interest will be levied for a period of 3 months. In other words, interest will be levied on Rs. 3,000 at 1% per month for 3 months. Interest under section 234C will come to Rs. 90.