TaxTMI 
TaxTMI 
Interest for Defaults in Furnishing Return of Income : Clause 423 of the Income Tax Bill, 2025 Vs. Section 234A of the Income Tax Act, 1961
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....r fail to file them altogether. Both provisions are foundational to the compliance regime of direct taxation in India, as they incentivize timely filing and penalize defaults, thereby ensuring the smooth functioning of the tax administration. The significance of Clause 423 lies in its attempt to modernize, clarify, and update the legislative framework, taking into consideration the evolution of tax procedures, the expansion of assessment mechanisms, and the need for greater precision in the computation and recovery of interest. The provision is crafted with a view to plug loopholes, harmonize with other procedural changes, and make the law more accessible and enforceable. This commentary undertakes a detailed analysis of Clause 423, deconst....
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.... the assessee shall be liable to pay simple interest calculated as: I = 1% x A x T Where: I = interest payable A = amount of tax on which interest is payable (as per sub-section 2) T = number of months in the period from the starting date to the end date (as per sub-section 2) This formula is designed to ensure clarity and uniformity. The rate of 1% per month is retained from the existing law, and the use of a formulaic approach aids in reducing interpretational disputes. 2. Circumstances, Dates, and Amount of Tax This sub-section introduces a comprehensive table covering various default scenarios. Each row specifies: - The nature of default (circumstance) - The "starting date" for interest computation - The "ending date" - The....
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....e or revisional orders (u/ss 287, 288, 359, 363, 365(10), 368, 377, or 378), the tax amount changes. The interest is correspondingly increased or reduced, with a demand notice or refund as appropriate. This ensures that the interest liability is dynamically linked to the ultimate tax determined, preventing both over-collection and under-collection. 4. Exclusions, Reductions, and Definitions Clause 423(4) clarifies several computational aspects: - Excludes additional income-tax u/s 267 from the tax base. - Provides for reduction of interest by any interest already paid u/s 266. - Defines "tax paid" to include advance tax, TDS/TCS, reliefs under specified sections, and tax credits. These clarifications are important to avoid double c....
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.... furnishing the return or the date of completion of assessment, depending on whether the return is eventually filed. Clause 423 follows the same principle but specifies starting and ending dates for each scenario in a table, reducing ambiguity. 5. Tax Base for Interest Calculation Section 234A provides that interest is payable on the tax determined u/s 143(1) (initial assessment) or under regular assessment, as reduced by advance tax, TDS/TCS, specified reliefs, and tax credits. Clause 423 similarly provides for reduction by advance tax, TDS/TCS, specified reliefs, and tax credits, but updates the section references to match the new Bill's structure. It also excludes additional income-tax under the corresponding provision (section 267....
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....eater specificity. * Definitions of "Tax Paid" and Exclusions: While both provisions define "tax paid" similarly, Clause 423's definition is more comprehensive and tailored to the new Bill's structure. * Potential for Reduced Litigation: The structured approach of Clause 423 may reduce interpretational disputes compared to Section 234A. Practical Implications for Stakeholders 1. For Taxpayers * The new provision offers greater clarity on the computation of interest, reducing the risk of errors and disputes. * Taxpayers must be attentive to the new section references and procedural requirements under the 2025 Bill. * The formulaic approach aids self-assessment and compliance but requires understanding of the new assessmen....
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....onal Months: The provision does not explicitly address whether a part of a month is to be treated as a full month, as is the case u/s 234A; clarification may be needed. Conclusion Clause 423 of the Income Tax Bill, 2025, represents a significant evolution in the legislative approach to interest on defaults in furnishing returns. By adopting a formula-based, matrix-driven structure, it seeks to enhance clarity, predictability, and administrative efficiency. The provision maintains the core compensatory character of the interest levy, while updating and expanding the computation mechanics to reflect contemporary tax administration needs. The comparative analysis reveals substantial continuity in substance between Clause 423 and Section 234A....