The Income Tax (I-T) department has recently issued numerous demand notices to advance taxpayers regarding interest payments. These notices require taxpayers to settle interest charges up until the processing date of their Income Tax Return (ITR). This development has raised concerns among taxpayers and industry representatives alike.
The Gujarat Chamber of Commerce and Industry (GCCI) has taken action by addressing this issue in a letter to the Central Board of Direct Taxes (CBDT). The chairman of GCCI’s direct tax committee pointed out the complexities arising from these notices. He stated, “As per Section 140B(1), tax, interest, and fees must be paid before filing updated returns, and under normal circumstances, no demand notices should be issued. However, recent notices for interest under Section 234B were sent to several taxpayers, despite the taxes being settled before filing, causing confusion and unnecessary burden.”
Sources indicate that Section 234B of the Income Tax Act mandates interest payment for inadequate or non-payment of advance tax. Additionally, Section 140(1) requires assessees to clear income tax, interest, and fees before submitting updated returns, along with payment evidence.
Furthermore, Section 140B(3) stipulates that additional income tax—25% of tax and interest—is applicable for returns filed within 12 months, or 50% if filed within 24 months from the end of the assessment year. The updated ITR submissions must include payment of interest under Sections 234A to 234C as well as any applicable additional income tax.
The primary concern raised does not challenge the validity of the additional income tax rate or the computation method but focuses specifically on the calculation of interest under Section 234B. Recent issues have arisen as taxpayers who filed updated returns after settling their full tax liabilities—including income tax, additional income tax, fees, and interest—are now receiving demand notices following the processing of their returns.
According to the GCCI chairman, the updated return filing utility calculates interest under Section 234B only up to the date the return is filed. In contrast, the intimation issued under Section 143(1) computes interest under Section 234B up to the date of processing of the updated return. He explained, “As a result, taxpayers who met their full tax and interest obligations before filing the updated return are now being asked to pay additional amounts due to delays in the processing of their returns. This has led to confusion and undue financial burden on the affected taxpayers.”
To address this ongoing issue, he suggested an amendment to the Income Tax Act that would incorporate a new sub-section within Section 234B, specifically targeting interest computation for updated returns (ITR-U).
As this situation continues to evolve, affected taxpayers and industry bodies are hopeful for a swift resolution that clarifies the interest calculation and alleviates the financial stress placed upon taxpayers.