Includes provisions for imposing interest on delay in payment of advance taxes
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.
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 |
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.
Are senior citizens subject to Sections 234B and 234C?
Senior citizens without business or professional income are exempt from paying advance tax and are not liable for interest under Sections 234B and 234C for non-payment of advance tax.
How can I avoid penalties under Section 234B?
To avoid interest charges under Section 234B, ensure you pay your advance tax on time. The due dates are 15th June, 15th September, 15th December, and 15th March.
Does interest under Section 234B apply to senior citizens?
Yes, interest under Section 234B applies to senior citizens if they have income from a business or profession. However, senior citizens without business or professional income are exempt from paying advance tax and the associated interest.
What is the limit under Section 234B?
Under Section 234B, taxpayers must pay at least 90% of their total tax liability before the financial year ends. If they fail to do so, a 1% monthly interest penalty is charged on the unpaid amount.
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