Under the Income tax Act, 1961 the Chief Commissioner of Income tax and the Director General of Income tax have the power to reduce or Waive interest charged under Sections 234A, 234B and 234C of the Act. However, no reduction or waiver of such interest shall be ordered unless the assessee has filed the return of income for the relevant assessment year and paid the entire tax due on the income as assessed except for the amount of interest for which reduction or waiver has been requested for. The Chief Commissioner of Income tax or Director General of Income tax may also impose any other conditions deemed fit for the said reduction or waiver of interest.

There are five classes of incomes or of cases in which reduction/waiver of interest can be considered. Briefly these are as follows:

• Where during the course of a search & seizure operation under section 132(1) of the Act, the books of accounts and other documents of the assessee are seized and for reasons beyond the control of the assessee he is unable to furnish the return of income for that year within the specified time;
• Where during the course of a search & seizure operations, cash is seized and it is not allowed to be utilised for payment of the advance tax instalment which falls due after the date of the seizure and as a result the assessee is unable to pay the advance tax;
• Where any taxable income other than 'capital gain' is received or accrued after due date of payment of the first or subsequent instalment of advance tax which was not anticipated by the assessee and the advance tax on such income is paid in the remaining instalment or instalments (relevant for interest under Section 234C);
• Where any income which was not chargable to income tax on the basis of any High Court order and on which the assessee did not pay Income tax and subsequently in consequence of any retrospective amendment of law or a Supreme court decision which has taken place after the end of such previous year, in any assessment or reassessment proceedings, the advance tax paid by the assessee during the financial year immediately preceding the relevant assessment year is found to be is less than the amount of advance tax payable on his current income (Relevant for interest under Section 234B & 234C);
• Where return of income could not be filed by the assessee due to unavoidable circumstances and such return of income is filed voluntarily by the assessee or his legal heirs, without detection by the assessing officer.

Section 234A: Interest for Defaults in Furnishing Return of Income :

Where the return of income for any assessment year is furnished after the 'due date', the assessee is liable to pay simple interest at the rate of 2% per month on the tax on the total income till the date of filing the return. Where no return is filed the same interest is charged till the date of completion of the assessment under section 144.

Section 234B: Interest for Defaults in Payment of Advance Tax :

Where the assessee has to pay advance tax and there is either a default on the part of the assessee to pay the same or there is a default on the part of the assessee in the sense that the specified percentages of advance tax are not deposited before the specified dates, the assessee in such cases is liable to pay penal interest under section 234B or 234C, as the case may be. The interest for short payment of advance tax is calculated under section 234B as under:-

• If the assessee pays less than 90% of the total advance tax payable for the year before the close of the previous year, simple interest @ 2% per month or part thereof is chargeable w.e.f. Ist April of the Assessment Year to the date of determination of income U/s 143(1) or to the date of regular assessment on the assessed tax as reduced by any advance tax paid.

Section 234 C: Interest for Deferment of Advance Tax :

Where the assessee has to pay advance tax and there is either a default on the part of the assessee in the sense that the specified percentages of advance tax are not deposited before the specified dates, the assessee in such cases is liable to pay penal interest under section 234C. The interest for deferment of advance tax is calculated under section 234C as under:-

• In the case of Corporate Assessee- If the advance tax paid by the company on or before the 15th of June falls short of 15% of the total advance tax payable for the year or if the advance tax paid by the company on or before the 15th of September falls short of 45% of the total advance tax payable for the year or if the advance tax paid by the company on or before the 15th of December falls short of 75% of the total advance tax payable for the year, the company shall be liable to pay simple interest @ 1.5% per month for a period of three months in each case on the amount of the shortfall in payment of tax. The companies are also liable to pay interest if the advance tax paid on or before 15th of March is less than the tax due on the returned income. However it has been provided that if the advance tax paid by the company on its current income on or before the 15th of June or 15th of September is not less than 12% or, as the case may be, 36% of the tax due on the returned income, the company shall not be liable to pay any interest on the amount of shortfall by these dates.
• In the case of non-Corporate Assessee- If no advance tax is paid or the advance tax paid on or before 15th September is less than 30% of the tax payable on the returned income as reduced by taxes deducted at source, simple interest @ 1.5% p.m. is chargeable on the amount of the shortfall for a period of 3 months.If no advance tax is paid or if the advance tax paid on or before 15th December is less than 60% of the tax payable on the returned income as reduced by taxes deducted at source, simple interest @ 1.5% p.m. is chargeable on the amount of such shortfall for a period of 3 months. If the advance tax paid by the assessee on his current income on or before 15th of March is less than the tax due on the returned income,the assessee is liable to pay simple interest @ 1.5% on the amount of such shortfall.

Interest is not leviable if the shortfall in the payment of advance-tax if it is on account of

• under estimation of or failure to estimate the amount of capital gains
• income from winnings from lotteries, crossword puzzles, races, card games, gambling, betting etc.
• However this benefit of non charging of interest is available if the assessee pays the whole of the tax payable in respect of these incomes in the remaining instalments of advance tax which are due or if no such instalment is due, by the 31st day of March of the financial year.