What is Section 234B under Income Tax Act?

If the taxpayer delays the payment of advance tax charged on him or her, he or she will have to pay interest under section 234B. This interest can also be levied on you if you have paid the advance tax and the amount is less than 90% of the assessed tax.

That means there are two conditions in which the interest is charged on the taxpayer under Section 234B. These are:

  • If the taxpayer delayed the payment of advance tax.
  • If the taxpayer paid the advance tax but not the complete amount, i.e the amount paid by him is less than 90% of the assessed amount.

Interest to be imposed on the taxpayer under the section 234B

The interest that has to be levied on the defaulter taxpayer who has not paid the advance tax or paid a part of it less than 90% of the assessed amount is 1% per month till the time he or she has delayed the payment. The due date for the payment of the advance tax is 31st July of the financial year. The payments made after this date in the assessment year will be taken as delayed payments and will be charged.

To better understand this Section 234B you should know the following terms and concepts:

What is the meaning of advance tax?

Advance tax is the amount of tax that is to be paid on the due dates that are stated by the Income Tax department. This advance tax is applicable to taxpayers who are eligible to pay Rs.10,000 or more as the taxes in the financial year. The defaulters of this advance tax on time or defaulter completely will be liable to pay interest under Section 234B.


Taxpayers responsible to pay advance tax

  • The individuals who are self-employed, professionals, businessmen or salaried employees need to pay advance tax. The condition on which they have to pay this advance tax is when the tax payable after adjustment of Tax Deduction At Source(TDS) is Rs 10,000 or more than this.

Computation of interest under Section 234B

If the taxpayer defaults to pay advance tax completely or in part, he or she will be charged an amount as a penalty in the form of interest. The interest to be paid is 1% on the assessed tax ( the tax to be paid after deduction of the advance tax). If there is a part of a month to be included it will be rounded off in each case.

The interest that is applicable is divided in three cases:

1. When no tax deduction at source is made during the calculation of the tax and the amount is more than Rs. 10,000 and the individual defaults to pay the advance tax.
For example: Kritika is liable to pay taxable amount of Rs. 50,000. There was no tax deduction at source. The amount she has to pay as tax is Rs. 50,000 which is more than 10,000. So she has to pay advance tax. But she paid the amount on 15th June while filing the return. In this case, she is responsible to pay interest under Section 234B for three months that is April, May, June..
The calculation of interest for Kritika will be done as =Rs. 50,000*1%*3
Thus, Kritika is liable to pay interest of Rs. 1,500 under Section 234B.
2. When the total tax to be paid after reduction of Tax Deduction at Source is more than Rs. 10,000 and the individual defaults to pay the advance tax.
For example: Mita has to pay a total tax of Rs. 1,00,000 for the financial year. The tax deduction at source is 60000. In March she paid Rs 20,000 while the balance was paid by her in july. Her assessed tax = Total Tax- tax Deduction at Source(TDS) = Rs. 1,00,000- Rs. 60,000= Rs. 40,000. She was liable to pay Rs. 40,000 as tax or 90% of this amount. 90% of the tax = 40000*90%=36000 She should have paid Rs. 36000 by march but only paid Rs. 20000. Hence, she is liable to pay interest for late part payment of tax for four months that is April, May, June, and July. The interest calculation will be:
36000-20000(advance tax)= 16000
Interest= 16000*1%*4 =Rs. 640
Thus, Mita is liable to pay interest of Rs 640 under section 234B.
3. If advance tax paid by the taxpayer but not complete. If the taxpayer pays less than 90% of the assessed tax, he or she is liable to pay interest for the months delayed.
For example: Shekar has a total taxable amount of Rs. 70,000, out of which he paid Rs. 30,000 in march as advance tax. The remaining amount he paid at the time of filing return in june. The amount he should have paid was Rs. 63,000 as advance tax. But he paid Rs. 30, 000 which is less than 90% of his total amount. Therefore shekhar is liable to pay interest for three months i.e April, May, and June under this section. Calculation of interest
Amount on which interest is to be calculated = 70000-30000(advance tax)= 50000 Interest = 50000*1%*3 = 1500
So, Shekhar is responsible to pay rs. 1,500 as interest under Section 234B.

Conclusion

When it comes to tax compliance you must be very serious and up to date. Otherwise, you have to pay various repercussions in the form of interest to be charged on you. Like in the Section 234B you will be charged with interest to be paid on taxable amount if you delay in paying your advance taxes.

Frequently Asked Questions

Q- Why do you need to pay interest under Income tax act?

If you default to pay taxes on time or do not comply with the rules and regulations of income tax you will be charged with a penalty in the form of interest.


Q- Does delay in advance tax is charged with a penalty?

Yes, if you will delay the payment of advance tax, you will be charged a penalty in the form of interest on the taxable amount for the months of delay.


Q- How is the interest calculated on the taxable amount under section 234B?

The interest that is charged for delay in paying advance tax under Section 234B is computed from the due date until the date the payment of advance tax is done in the financial year The interest is charged @1% per month for the months you have delayed your payment of advance tax.

CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.