How to calculate income tax penalty ?

POSTED BY Yogesh K ON April 3, 2012 9:41 am COMMENTS (20)

A person is in 30% tax bracket. His company has deducted correct tax for the income he has gained from salary. For financial year 2011-12 the person has earned 96000 as property income (rent) , 20000 as short term gain from selling shares. There is no loan on him. Unfortunately the person has not paid any advance tax. Now while filing tax return some penalty / interest on this total taxable income is applicable as the person has not paid any advance tax. I am interested to know how this penalty is calculated.

20 replies on this article “How to calculate income tax penalty ?”

  1. Ashish Garg says:

    Dear Sarang / Yogesh,

    Few days back I had filed my revised IT return due to some mistake at my end. I was also searching at the same thing, in case I need to pay some interest / penalty for revising my return. While searching I found this

    https://www.investmentyogi.com/interest-calculator.aspx

    I have saved this link as favourite in my chrome so that can be shared with others or used in future.

    Hope this would be of some help to you.

    Ashish

  2. Sarang Khargonkar says:

    Dear Ashal and bemoneyaware,

    Thanks once again.

    Regards,
    Sarang

  3. Dear Sarang, you can fill -150000 Rs. as income from house property & fill the ITR-1. As your income is already calculated for tax exempted alowances, please put in the net income in ITR.

    thanks

    Ashal

  4. bemoneyaware says:

    Penalty on not paying/paying less Advance Tax:Sections 234A, 234B and 234C.
    If you owe more than Rs.10,000(after deducting TDS) while filing your returns, you will be penalized with Interest under sections 234A , 234 B & 234 C

    Under section 234A, the liability arises only when the return is filed after the due date which is 31st of July. Ex: Due Date for Assessment Year 2013-2014 or Financial Year 2012-2013 is 31st July 2013.
    Under section 234B, penalty arises when the total amount of advance tax paid along with the amount of TDS is less than 90% of the total tax liability. In such case interest is calculated at 1% per month of the amount of shortfall for time period from April to the month in which the return is filed.

    Under Section 234C, there are three components. For the first installment, the shortfall penalty is calculated for 3 months @1% p.m. Similarly, in the second installment, the shortfall penalty is also calculated for 3 months @1% p.m and the final installment is calculated at a flat rate if 1% for 1 month only.
    This is explained in detail in our article Advance Tax:Details-What, How, Why

  5. bemoneyaware says:

    Clarifying about Advance Tax and Penalty under section 234

    If you estimate that you will owe more than Rs.10,000 on March 31 of financial year in taxes (after deducting TDS) then you should pay advance tax.
    Below are the dates and percentages of when the advance tax is to be paid :
    Due Date Installment % of Advance Tax
    15th September Up-to 30%
    15th December Up-to 60%
    15th March Up-to 100%

    If you have to pay advance tax and If you fail to pay your Advance Tax or, if you pay less than the stipulated tax, you would be penalised and would have to pay extra under Sections 234A, 234B, 234C.

    The interest is calculated at 1% simple interest per month on the defaulted amount for three months. The interest penalty would continue up to the next deadline. If even after the last deadline of 15 March, the tax is not paid, then the 1% would be on the defaulted amount for a month, until the tax is fully paid.

  6. Dear Sarang, No it is not taxable. Actually it WAS taxable had you surrender it before completing 3Y term.

    Thanks

    Ashal

  7. Sarang Khargonkar says:

    Dear Ashal,

    Thanks once again.
    I could not find house loan interest deduction under Section 24 in ITR 1. Does that and other deduction need to be deducted from Income under salary head and then, put in the ITR 1 Income from Salary column.
    Please advise.

    Thanks,
    Sarang

    1. bemoneyaware says:

      Sarang you have raised a valid point here. This year ITR1 scope is very limited.
      Two restriction added are:

      One who have negative income under head Income from other sources can not use this form
      If one’s exempted income is more than 5,000 then that assessee can not use Sahaj (ITR-1)
      Salaried person getting transport allowance which is exempted 800 per month (more than 5000) can not use ITR-1.
      Salaried person getting HRA exemption (more than 5000) are also not eligible.
      Other allowances which are exempted also not eligible.
      If one has received maturity amount of insurance ,exempted at the time of receipt, more than Rs 5,000 also not eligible

      As there are so many instances where exempted income is more than 5000 , so those who have used ITR-1 earlier will not be able to use this form.

      So for ITR1 only if you have + income from house property you will be able to use it.
      More details on our article Which ITR form to fill

      1. Sarang Khargonkar says:

        Hi bemoneyaware,

        I don’t see any provision in ITR1 to mention deductions like Conv Allowance,HRA along with home loan interest deduction. For purpose of interest calculation for now, I just updated income from house property as -150000. Other deductions like Transpost/Conv All,HRA were already deducted from taxable income and so, put the deducted value in Income under head of Salary. This is only temp arrangement but I will need to confirm if this is how I will need to file the returns this year. If anybody can throw more light on this, would be great help.
        Thanks,
        Sarang

        1. bemoneyaware says:

          I don’t think there is an option to fill HRA, Conveyance allowance etc.
          Last year I had wriitten about how to fill ITR1 you can check it Filling ITR1 Form(for FY 2011-12)
          As you have negative income from house property u would need to fill in ITR2 (which is available now)

          1. bemoneyaware says:

            You can fill negative income in income from house property in ITR1. (I got confused with Income from other sources)
            But be careful to check whether ITR1 is applicable to you because of exemption limits.

  8. dear Sarang, tax liability is yours’ not your employers’. The Govt. has just provided you a comfortable route to pay your taxes deducted from your salary.

    Now you can not stop the penalty part. you can only reduce it by paying early the due taxes.

    thanks

    Ashal

  9. Sarang Khargonkar says:

    Dear Ashal,

    Thanks for your response. However, my question was more towards how can I reduce/avoid paying interest under 234B and 234C…:)
    The points that I had in mind are:
    1. Previous Employer didn’t give me a Form 16 once they had cleared all dues and they also charged less than 10% TDS on Superannuation amount paid to me when I am already in 20% tax bracket. They should know better than me about tax payables and so, its their fault too that I owe certain tax after all these dues paid.
    2. New employer didn’t enforce me to provide previous employer’s form 16 or salary/tax deducatins. They knew that I had switched jobs and had also provided them salary slips and Form 16s for previous years from previous employer. They are at fault by assuming no income and applying standard deductions again which meant low tax and higher payable now.

    Do you agree with the above points? Any idea how these can be used to save some precious thousands from not paying to this non-performing government…:)

    Appreciate your quick response.

    Thanks,
    Sarang

    1. bemoneyaware says:

      We can play the blame game but as they say chakko tarbooz pe pade ki tarbooz chako per katta tu tarbooz hi hai (whether knife falls on water-melon or watermelon falls on knife it’s watermelon that gets cut)
      When a new employee joins the company, he is required to give the particulars of income from his earlier employment by filling Form 12B. The current employer can’t insist on filing of Form No 12B. If the employee chooses not to file, then employers’ obligation is limited to compute TDS on salary payable by him.
      Our article Changing Jobs:Take Care Of Bank Account,Tax Liability discusses it in detail.

  10. Dear Sarang, no need to worry. First of all please deposit the basic Tax amount which is liable to you. I hope, how to deposit is clear to you.

    Now fill in your details in ITR-1 or ITR-2 as the case may be. The penal interest ‘ll be calculated automaticaly & you w’d have to pay just that now.

    Once this penal interest is also paid by you. Please file your ITR & relax.

    thanks

    Ashal

  11. Sarang Khargonkar says:

    Dear Ashal,
    I have joined the forum only couple of days back but have been reading your answers to all kinds of questions for quite some time. Must say your answers are very informative and to the point. On the same note of Advance tax,I wanted to ask: I changed my employer this year and by the time, final dues (including PF, Gratuity, Superannuation etc) were settled, it was already Feb’13. I received Form 16 from previous employer only last week and hence, I could not declare my income from previous employer to new employer. Now there is obviously huge tax payable because new employer didn’t consider the previous income. I had checked with a CA on the penalty interest payable and he gave me an estimate under section 234B and 234C. I also read somewhere that the TDS cut on salary is considered as advance tax paid and should not be considered for penal interest. Is that true? how can I reduce the penal interest (as the IT desk at new employer didn’t force/advise me to get the previous employer’s income and tax deductions details which they should).
    Please advise.
    Thanks,
    Sarang

  12. Yogesh K says:

    Hi Ashal,

    Property rend income is net income from property (after deducting 30& as repairing cost & property tax) No Capital loss. 20000 is Short Term Capital Gain where the person will pay 15% tax.
    My query is income tax penalty is calculated when advance tax is not paid.

    Thanks

    Yogesh

    1. Dear Yogesh, yes the penalty is applicable to you under section 234. To save your skin from more damage, please pay right now at least the basic tax amount arising out of your normal calculation. For details on penalty, please read section 234.

      Thanks

      Ashal

  13. Dear Yogesh, May I help you? is this 96000 Rs. is the final rental income after considering the deductions available or before any deductions? If it’s before any deductions, what’s the property tax paid on this property to municipal authorities in last FY?

    The STCG from sell of shares – Had you booked your gains by selling online & paying STT? Is it the final STCG or do you have some STCL also?

    Please answer as early as possible for your own good.

    Thanks

    Ashal

  14. rmohan80@gmail.com says:

    Hi,

    Maybe this tool would help you — https://www.investmentyogi.com/interest-calculator.aspx

    Also, from what I remember when you file your taxes online using ITR, the excel sheet automatically calculates tax payable after including appropriate penalties.

    If I remember correctly the penalty is very less (1%) if you pay within Mar of the next year. This is from memory which I think I’ve read somewhere, but I may be mistaken

    Thanks,

    Ram

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