Section 234B of the Income Tax Act, 1961 refers to the interest a taxpayer must pay when they delay the advance tax payment charged to them. Every individual needs to pay this tax in case the total tax that they have to pay goes above ₹10,000 in a fiscal year. 

 

Interest can also be charged if the amount of advance tax paid is less than 90% of the tax assessed.

Applicability of Section 234B

It would be best if you calculated the interest under Section 234B in the following instances:

  • No payment of advance tax even though the individual is liable to do the same

  • In case the payment of advance tax is less than 90% of the tax assessed:

     

Assessed tax = (Total tax liability-TCS/TDS)

 

Apart from interest under 234B, the following are also covered u/s 234:

Income tax return (ITR) filing default interest

Section 234A

Deferred advance tax payment

Section 234C

Late filing of ITR penalty

Section 234F

Calculation of Interest Penalty Under Section 234B

If you fail to pay the advance tax either partially or fully, you will have to pay interest under Section 234B as a penalty. The interest will be levied at 1% of the tax assessed, i.e., the amount required to be paid after the advance tax deduction.

 

If it is not an entire month, it is rounded off to a full month. The interest amount that is calculated is rounded off so that any fraction of a hundred is not taken into consideration.

 

The interest applicable falls into one of the following categories:

 

1. In case there is no TDS when calculating tax, the amount exceeds ₹10,000, and the taxpayer fails to make the advance tax payment.

 

Example:

Mr. X is expected to pay an amount of ₹60,000 as tax, and there is no TDS. Since the amount he is required to pay exceeds the stipulated amount of ₹10,000, he has to make an advance tax payment. 

 

The amount was paid on June 15 while filing the ITR. In this case, he is liable to pay the interest under Sec. 234B of the I-T Act for all three months from April to June. The interest calculation for Mr. X will be done in the following manner:

 

₹60,000*1%*3 = ₹1,800

 

Therefore, Mr. X has to pay an interest of ₹1,800 under Section 234B of the Income Tax Act.

 

2. In case the tax to be paid post-TDS exceeds ₹10,000, and the taxpayer fails to make the advance tax payment.

 

Example:

Tax liable to be paid for the fiscal year

₹1,00,000

Tax Deducted at Source

₹50,000

Advance Tax amount paid in March

₹20,000

Assessed Tax Amount (Total Tax - TDS)

₹50,000

Tax expected to be paid

(₹50,000 or 90% of the same)

₹45,000

Interest applicable on the delayed payment of the balance amount, i.e., ₹20,000 in July

₹25,000*1%*4 = ₹1,000

Therefore, an interest of ₹1,000 is to be paid for the delayed payment.

 

3. If the advance payment is made but incomplete and the taxpayer pays less than 90% of the tax assessed, he/she will have to pay interest for the delay.

 

Example:

Taxable amount

₹80,000

Advance Tax paid in February

₹40,000

Advance Tax expected to be paid (90%)

₹70,000

Interest to be paid on the delayed advance tax payment made in the month of May

(₹80,000 - ₹40,000)*1%*3 = ₹1,200

Therefore, an interest of ₹1,200 is applicable for delayed advance tax payment under Section 234B of the Income Tax Act.

Frequently Asked Questions

What is the rate of interest under Section 234B of the Income Tax Act?

The interest under Section 234B of the Income Tax Act, 1961, is calculated at 1% per month.

Will I have to pay Section 234B-stated interest even if I have paid a part of my advance tax dues?

Yes, rules under Section 234B are applicable even if you have paid a portion of the advance tax liability. Still, it is less than 90% of your assessed tax liability.

Do senior citizens need to pay advance tax?

No, senior citizens who do not have any income from business or profession need not pay any advance tax.

Is Section 234A and 234B both applicable to an assessee?

Yes, section 234A is applicable if there is a delay in filing your IT returns, while Section 234B is applicable in case of a default in payment of advance tax.

If I have not paid my advance tax dues, and I file my return on June 17, for what period is Section 234B interest calculated?

In this case, the interest u/s 234B is calculated for a period of 3 months.

Who should pay the interest penalty under Section 234B?

The following individuals are required to pay the interest penalty if the applicable tax is ₹10,000 and they fail to pay the advance tax.

  • Salaried professionals

  • Entrepreneurs

  • Self-employed individuals

Who is exempt from paying advance tax?

There are a few exemptions from paying advance tax to certain groups of people. They include:

  • Elderly citizens who are 60 years of age and above with no income

  • Individuals who have opted for presumptive tax regime u/s 44AD

 

Anyone who falls under this category does not have to pay advance tax. To avoid paying interest, file your taxes on time and pay attention to the advance tax cut-off dates. 

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