Section 234B

Interest under section 234B of Income Tax Act is levied upon those taxpayers who default in the payment of Advance Tax.

Advance Tax means paying your tax dues based on the dates (usually quarterly) provided by the income tax department. You may be liable to pay interest under section 234B if you don’t pay advance tax.

There are similar other penalties Under Section 234A(Default in the filing of Tax Returns ) and Section 234C (Deferment of Advance Tax).

Who Needs to Pay Interest Penalty under Section 234B?

Salaried employees, self-employed professionals, businessmen etc. are required to pay Advance Tax where the tax payable is Rs 10,000 or more.

There are two cases in which interest u/s 234B is levied upon taxpayer:

a) When a taxpayer is liable to pay Advance Tax but he fails to do so, or
b) When a taxpayer has paid Advance Tax but the amount paid is less than 90% of the Assessed Tax.

Who Does not Need to Pay Advance Tax?

  1. It is not applicable when a senior citizen (who is 60 yrs or more) does not have any income from business & profession, is not liable to pay advance tax.
  2. If a taxpayer opts for the presumptive scheme of calculating business income under section 44AD @ 8% of turnover, then he will be exempt from payment of Advance Tax for such business.

How is Interest Penalty u/s 234B Calculated?

The following key points should be kept in mind while doing calculations:

1) Interest is charged @ 1%
2) The nature of interest is simple interest
3) Interest is calculated @ 1% on Assessed Tax (Tax determined u/s 143(1)/ 147/153A) less Advance Tax paid.
4) Any fraction of month shall be considered as a full month for calculating interest
5) When calculating interest, the amount of taxes due shall be rounded off to the multiple of 100 and ignore any fraction of 100.

Examples 

Example 1– Komal’s total tax liability is Rs 48,000. Komal paid this amount on 12th June while filing her return.
Komal’s total tax liability is more than Rs 10,000, she was liable to pay advance tax. Therefore, Komal will be liable to pay interest under section 234B.

Interest calculation

Rs 48,000 x 1% x 3 (April, May, June)
= Rs 1,440

Komal is liable to pay Rs 1,440 interest as per section 234B.

Example 2– Mr. Nawal has an Assessed Tax liability of Rs. 72,000. Nawal paid all his installments on time but by the end of Financial Year, he had paid Rs. 60,000 as Advance Tax. 

The shortfall of taxes in his case can be found after deducting Advance Tax paid from Assessed tax (Rs. 72,000 – Rs. 60,000) which is Rs. 12,000.

He paid the taxes due, i.e. Rs. 12,000 on 4th July when he filed his return.

As per the rules mentioned above, interest @ 1% will be calculated on the taxes due for a period of 4 months, i.e. April, May, June and July (tax was paid on 4th July so it will also be considered as a full month).

(Rs. 12,000 x 1%) x 4 = Rs. 480 

So, Nawal needs to pay interest of Rs. 480 along with taxes due.

For any help on ITR Filing feel free to consult the tax experts at LegalRaasta. You can file ITR yourself via our ITR software or get CA’s help on filing income tax return. You can also use the option of Business Return, Bulk Return or Revised Return Filing.