Payment of Advance Tax is mandatory when the tax liability is more than INR 10,000. To ensure that taxpayers pay Advance Tax on time, the Income Tax Department has introduced section 234B to levy interest in case there is a default in the payment of Advance Tax. In this article, we will discuss the provisions of Section 234B in detail.
Interest under section 234B is levied in the following two cases:
Here, ‘Assessed Tax’ means the tax on total income calculated during the regular assessment and further reduced to the extent of:
Under section 234B, interest for default in payment of Advance Tax is levied at 1% (simple interest) per month (or part of a month).
Interest under section 234B is levied on the amount of unpaid/short paid Advance Tax. The amount of unpaid/short paid Advance Tax can be computed as follows:
|Assessed tax (A)||XXXXX|
|(Less) Advance Tax paid (if any) (B)||(XXXXX)|
|Amount of unpaid/short paid Advance Tax (A-B)||XXXXX|
The interest on the unpaid/shot paid Advance Tax is calculated from the first day of the Assessment Year (from 1 April of the relevant AY) till the date of determination of income under section 143(1) or the date on which he regular assessment is made. Generally, the period between the 1st day of the relevant AY and the date of filing income tax return is considered to calculate the interest payable u/s 234B.
The tax liability of Mr A is INR 28,400 (for FY 2018-19). He has not paid any Advance Tax, but there is a TDS credit of INR 10,000 in his account. He paid the balance tax on 31 July 2019 (at the time of filing the income tax return). Will he be liable to pay interest under section 234B, if yes, then how much?
In this case, the tax liability (after allowing credit of TDS) of Mr A is INR 18,400 (INR 28,400 – INR 10,000). Since the tax liability exceeds INR 10,000, Mr A was liable to pay Advance Tax. However, since he has not paid the Advance Tax, interest u/s 234B will be charged at 1%. Here, the interest u/s 234B will be INR 736 (18,400*1%*4 months*). *Period between 1 April 2019 to 31 July 2019.