27 Dec 2021
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There are different kinds of taxes that taxpayers need to pay to the IT department, such as TDS, TCS, self-assessment tax and advance tax. Delays in payment of any of these taxes attract penalties and interests, as per the provisions of the Income Tax Act, 1961. One such provision is contained in Section 234B of the Act.

What is Section 234B of the Income Tax Act?

Section 234B of the Income Tax Act, 1961 contains the provisions related to the interest payable in case of a default in the payment of advance taxes. The interest is only levied in case of any default in advance tax payments. So, if you are eligible to pay advance tax and you have paid your dues on time, you will not be charged any interest under Section 234B of the Income Tax Act.

What is Advance Income Tax?

To understand what section 234B of the Income Tax Act 1961 is all about, it is important to first understand what advance tax is. As the name indicates, advance tax is simply the tax that has to be paid in advance, before the end of the financial year. Anybody whose tax liabilities during a financial year exceed ₹10,000 needs to pay advance tax. The advance tax payments need to be made as per the specific due dates provided by the Income Tax Department.

Interest payable under Section 234B

The interest payable under section 234B is applicable in the following two cases-

  1. You did not pay any advance tax despite being liable to do so.

  2. You have paid some advance tax, but it is less than 90% of your assessed tax liability.

In case any of the above two conditions are applicable, you will be liable to pay interest under section 234B of the Income Tax Act, 1961.

What is the formula for Section 234B of the Income Tax Act?

The formula for calculator of interest under section 234B of the Income Tax Act, 1961 is quite simple. Here is what you need to know-

  • Section 234B is calculated at the rate of 1% per month.

  • Every part of a month is rounded up to one month.

  • The interest is calculated on the amount of advance tax dues outstanding.

  • In the section 234B formula, the amount is rounded off to ignore any fraction of 100.

The formula under section 234B of the Income Tax Act, 1961 is as follows.

Interest under section 234B = (Total advance tax outstanding) x (Period in months) x (1% per month)

To further understand how interest under Section 234B of the Income Tax Act, 1961 is calculated, let’s take a look at some examples and apply the formula seen in the above section.

Example 1:

Take a look at the following parameters and details.  

Particulars

Details

Total tax liabilities

₹50,000

Advance tax paid

Nil

Date on which income tax returns are filed

May 7

Delay in payment of advance tax

2 months

 

(April and May)

 Given the above data, the interest under Section 234B of the Income Tax Act will be calculated as follows.

 

234B interest:

= ₹50,000 x 2 months x 1% per month

= ₹1,000

 

Example 2:

Now, take a look at the following details.  

Particulars

Details

Total tax liabilities

₹50,000

Advance tax paid as per the due date

₹12,000

Outstanding advance tax liabilities

₹38,000

 

(₹50,000 - ₹12,000)

Date on which income tax returns are filed

May 7

Delay in payment of advance tax

2 months

 

(April and May)

In the above case, the interest under Section 234B of the Income Tax Act will be calculated as follows.

 

234B interest:

= ₹38,000 x 2 months x 1% per month

= ₹760

Who should pay the interest penalty under Section 234B?

The provision of interest under Section 234B of the Income Tax Act, 1961 is applicable to the following kinds of taxpayers-

  • Salaried individuals

  • Self-employed people

  • Businessmen

Anyone who falls under the above categories and needs to pay taxes of ₹10,000 or above during a financial year needs to be aware of the provisions of Section 234B.

Who should not pay advance tax under section 234B?

There are a few income tax exemptions to certain categories of people from paying advance tax, as follows.

  • Senior citizens over the age of 60 who have no income from any business or profession.

  • Taxpayers who opt for presumptive taxation under Section 44AD of the Income Tax Act, 1961.

Anyone who satisfies any of the above conditions need not pay advance tax. Consequently, the provisions of Section 234B of the Income Tax Act, 1961 will also not be applicable to these assessees.

FAQs

  • ✔️What is the rate of interest under Section 234B of the Income Tax Act, 1961?

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

  • ✔️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.

  • ✔️Will I have to pay section 234B interest even if I have paid a part of my advance tax dues?

    Yes, section 234B is applicable even if you have paid some of the advance tax liability, but it is less than 90% of your assessed tax liability.  

  • ✔️Can section 234A and 234B both be applicable to an assessee?

    Yes, section 234A is applicable in case of 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 under section 234B is calculated for a period of 3 months.