What is Section 234B?

Section 234B of the Income Tax Act 1961, deals with the interest a taxpayer must pay when they delay the advance tax payment charged to them. The interest can also be applied to the taxpayer if the amount of advance tax paid is less than 90% of the tax assessed.

 

There are two conditions for which the taxpayer would be charged interest under Section 234B. They are:

  • In case the individual delays advance tax payment when the tax liability post TDS for the fiscal year is equal to or more than Rs.10,000.

  • If the individual has made the advance tax payment but not the entire amount, given that, the amount paid is less than 90% of the amount assessed.

Applicability of Section 234B

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

  • No advance tax payment is made 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 Section 234B, the following fee/interest is 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

What is Advance Tax?

Advance tax means paying a part of your tax liability even before the end of the fiscal year to the Income Tax (IT) department. It is also referred to as the pay-as-you-earn tax.

 

Every individual needs to pay this tax in case the total tax that he/she has to pay goes above Rs.10,000 in a fiscal year. For this very reason, the IT department has mentioned due dates for advance tax payment. Failure to pay advance tax leads to the interest penalty u/s 234B.

Who is Liable to Pay an Advance tax?

Every assessee for whom the tax liability is above Rs.10,000 after deduction of TCS/TDS is expected to pay advance tax. The assessee here means self-employed individuals, salaried employees, partnership firms, companies, taxpayers who opt for presumptive tax regimes. Although, a senior citizen with no income under ‘Income from Business and Profession’ is not required to pay advance tax.

Calculation of Interest under Section 234B

If the taxpayer fails to pay the advance tax either partially or fully, an interest is charged penalty. The interest that will be levied is 1% of the tax assessed i.e., the amount that is required to be paid post advance tax deduction).

 

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

 

The interest applicable falls into one of the following:

  • In case no TDS is made while calculating tax, the amount exceeds Rs.10,000, and the taxpayer fails to make the advance tax payment.

Example:

Mr. X is expected to pay an amount of Rs. 60,000 as tax, and there was no TDS. Since he is required to pay Rs.60,000, which exceeds the stipulated amount of Rs.10,000, he has to make an advance tax payment. The amount was paid on the 15th of June while filing the ITR. In this case, he is liable to pay the interest u/s Section 234B for all three months from April to June.

 

The interest calculation for Mr. X will be done in the following manner - 

 

Rs.60,000*1%*3 = Rs.1,800

 

Therefore, Mr. X has to pay an interest of Rs.1,800 under Section 234B.

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

Example:

Tax liable to be paid for the fiscal year

Rs.1,00,000

Tax Deducted at Source

Rs.50,000

Advance Tax amount paid in March

Rs.20,000

Assessed Tax Amount (Total Tax - TDS)

Rs.50,000

Tax expected to be paid

(Rs.50,000 or 90% of the same)

Rs.45,000

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

Rs.25,000*1%*4 = Rs.1,000

Therefore, an interest of Rs.10,000 is to be paid for the delayed payment.

  • In case the advance payment is made but incomplete, and he/she has paid less than 90% of the tax assessed, then he/she has to pay interest for the time delayed.

Example:

Taxable amount

Rs.80,000

Advance Tax paid in February

Rs.40,000

Advance Tax expected to be paid (90%)

Rs.70,000

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

(Rs.80,000-Rs.40,000)*1%*3 = Rs.1,200

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

Who Should Pay the Interest Penalty under Section 234B?

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

  • Salaried professionals

  • Businessmen

  • Self-employed individuals

Who is Exempt from Paying Advance Tax?

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

  • 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.

Frequently Asked Questions

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

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

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

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.

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

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