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CMA Intermediate · Direct and Indirect Taxation · Advance Tax

A regular assessment is followed by reassessment under section 279 that increases the tax on total income from Rs 3,00,000 to Rs 3,80,000 for a tax year. What is the amount on which additional interest under section 424(5) is charged, and for what period?

Interest applies on the increase of Rs 80,000, being reassessed tax less earlier tax under the formula A = B - C in section 424(5). It runs at 1% per month or part of a month from 1 April following the tax year until the date of reassessment.

  1. ARs 80,000, from 1 April following the tax year to the date of reassessmentCorrect
  2. BRs 3,80,000, from 1 April following the tax year to the date of reassessment
  3. CRs 80,000, from the date of regular assessment to the date of reassessment
  4. DRs 80,000, from the due date of the first instalment to the date of reassessment

Explanation

Section 424(5) gives A = B - C, where B is tax on reassessed income (Rs 3,80,000) and C is tax determined earlier (Rs 3,00,000), so A is Rs 80,000. Interest at 1% per month or part runs from the 1st April immediately following the tax year to the date of reassessment. The option starting from regular assessment date is wrong.

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