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Levy of additional interest on extension of due date of income tax return: How far justified?

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The Central Board of Direct Taxes vide Circular No 17 dated September 9, 2021 has extended the due date for filing income tax returns on account of the difficulties being reported by the taxpayers in electronic filing of Income-tax returns of the Tax Portal owing to the glitches in the tax portal.

Levy of additional interest on extension of due date of income tax return: How far justified?
The Central Board of Direct Taxes vide Circular No 17 dated September 9, 2021 has extended the due date for filing income tax returns on account of the difficulties being reported by the taxpayers in the electronic filing of Income-tax returns of the Tax Portal owing to the glitches in the tax portal.
However, the taxpayers shall still be required to pay additional interest at the rate of 1 percent per month under section 234A despite filing the return in the extended period in case the balance tax payable exceeds Rs 1 lakh.
As per clarification 1 appended to the Circular, it has been clarified that the extension of the due date shall not be applicable in respect of provision of section 234A. The implication of this will be that despite filing the return in the 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 tax return i.e. July 31, 2021 in the case of ordinary taxpayers and October 31, 2021 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 1,00,000.
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Thus, the present Circular though has extended the due date of filing return but has specifically provided that despite extension of due date, interest at the rate of 1 percent shall be required to be paid in case the balance tax payable exceeds Rs 1,00,000.
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, 2021.
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, 2021 or October 31, 2021, as the case may be. 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, 2021 or October 31, 2021, 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 percent 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 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.
It may be relevant to note that in case self-assessment tax is paid on 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. In other words, self-assessment taxes shall still be required to be paid on or before the original due date of filing of return to avoid any levy of interest under section 234A of the Act. However, it may be relevant to point out that even the delay in payment of taxes is not attributable to the taxpayers as such.
For payment of taxes in time, a taxpayer must be in a position to compute its tax liability. Owing to the glitches in the Tax Portal, the taxpayers have not been in a position to compute their tax liability in the absence of information which is provided by the Tax Department in Form 26AS being available timely on the Tax Portal. Furthermore, Form 26AS are also not updated as tax deductors have not been able to upload their TDS statements in time. These issues in the Tax Portal have therefore led to inability of the taxpayers to correct assess their tax liability and pay the same within the original due date of filing the return.
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. Once it is admitted in the very first line of the Circular “On consideration of difficulties reported by taxpayers and other stakeholders in electronic filing of Income-tax returns”, ideally, no such interest which is akin to penalty should be leviable.
The author, Ved Jain, is the former ICAI president. The views expressed are personal.
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