This is the second part in a 3-part series about Interest imposed by the Income Tax Department.
Read our other guides on Section 234A. and Section 234C.
Part II: Section 234 B
(Interest for not Paying Advance Tax)
What is Advance Tax?
If you have to pay Rs 10,000 or more in taxes in a financial year, advance tax may be applicable to you.
Advance Tax means paying your tax dues based on the dates (usually quarterly) provided by the income tax department. If you don’t pay advance tax, you may be liable to pay interest under section 234B.
Who needs to pay Advance Tax?
All assesses including salaried employees, self-employed professionals, businessmen etc. are required to pay Advance Tax where the tax payable is Rs 10,000 or more.
Advance Tax is NOT applicable when
- Effective AY 2013-14 – A senior citizen (resident individual who is 60 yrs or more) who does not have any income from business & profession, is not liable to pay advance tax.
Late Payment Interest
Here are the two situations in which interest is applicable –
- You tax liability for the financial year is more than Rs 10,000 and you did not pay any advance tax.
- You paid advance tax but advance tax paid is less than 90% of ‘assessed tax’
In any one of the cases, interest under section 234B shall be applicable.
Interest is calculated @ 1% on Assessed Tax less Advance Tax.
Part of a month is rounded off to a full month. The amount on which interest is calculated is also rounded off in such a way that any fraction of a hundred is ignored.
Radhika’s total tax liability is Rs 48,000. Radhika paid this amount on 12th June while filing her return.
Radhika’s total tax liability is more than Rs 10,000, she was liable to pay advance tax. Therefore, Radhika will be liable to pay interest under section 234B.
Rs 48,000 x 1% x 3 (April, May, June)
= Rs 1,440
Radhika is liable to pay Rs 1,440 interest as per section 234B.
Arnav had a total tax payable of Rs 56,000, out of which Rs 48,000 was paid by him on 29th March as advance tax. The remaining balance of Rs 8,000 was paid by Arnav at the time he was filing his return on 30th May.
Even though Arnav has paid advance tax, we need to check whether he paid 90% of the assessed tax as advance tax or not.
Assessed tax is Rs 56,000. 90% of assessed tax is Rs 50,400. However, Arnav only deposited Rs 48,000 which is less than 90% of assessed tax, therefore, Arnav is liable to pay interest under section 234B.
56,000(assessed tax) – Rs 48,000 (advance tax)
8,000 x 1% x 2 (April and May)
= Rs 160.
Rs 160 is the interest payable under section 234B by Arnav.
Assume that the total tax Rohit needs to pay for the financial year is Rs. 1,50,000. A TDS of Rs 1,35,627 was already deducted from his income. Rohit paid Rs 5,000 on 25th March and balance of Rs 9,373 he paid at the time of filing his return on 20th July.
Let’s check whether Rohit needs to pay interest under section 234B
First let’s calculate assessed tax. Assessed tax = Rs 1,50,000 (total tax) less Rs 1,35,627 (TDS)
= Rs 14,373
Rohit should have paid at least 90% of the assessed tax or 90% of Rs 14,373 which is Rs 12,935 before 31st March. However, he paid only Rs 5,000. Therefore, Rohit is liable to pay interest under section 234B
Rs 14,300(assessed tax, fraction of 100 ignored) – Rs 5000(Advance Tax) = Rs 9300
Rs 9300 x 1% x 4 months (April, May, June, July)
= Rs 372.
Rs 372 is the interest payable under section 234B by Rohit.
Click to go to Part III, penalties under Section 234C
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