Interest U/s 234B for Default in Advance Tax payment:
234B of the Income Tax Act imposes a penal interest in case of
default in payment of advance tax. If the advance tax is not paid,
interest under section 234B will
be levied. Interest u/s 234B is levied in two cases:
- When even on being liable to pay Advance Tax, nothing is paid as Advance Tax; or
- Where Advance Tax paid is less then 90% of Assessed Tax
Every person whose total tax
liability for an year is Rs. 10000 or more, shall pay his taxes in
advance in the form of Advance Tax.
- Interest @1% for a month or part of a month is
to be levied for default in payment of Advance Tax on the unpaid amount of Advance Tax.
case of short fall in advance tax payment interest @1% will be
calculated on the amount by which advance tax is short paid.
- Calculation of the amount of advance tax not paid or short paid will done as explained below:
on total income for the year less TDS/TCS & any other relief in tax
payment granted under any other section of income tax act)
|Less Advance Tax paid (if any)||XXXXX|
|Amount of unpaid/short paid Advance Tax||XXXXX|
- The Assessed Tax for the purpose of calculation of unpaid/short paid advance tax is the amount
of income tax on total income reduced by the Tax Deducted at Source(TDS)/TCS, other relief claimed under
section 90/90A/91 and tax credit claimed under section 115JAA/115JD and advance tax paid (if any).
- Interest u/s 234B is levied from 1st
April of the Assessment Year till the amount of Advance Tax is paid as
Self Assessment Tax and if no Self Assessment Tax is paid, till the
final assessment made.
amount of tax on which penal interest is to be calculated shall be
rounded off to nearest multiple of Rs.100. For example if interest is
to be calculated on Rs. 9894, interest will be calculated on Rs. 9900.
calculation of interest any part of month shall be treated as whole
month. For example if the delay in furnishing return is of 5 months and
10 days, interest will be calculated for 6 months.
- How to avoid Interest u/s 234B?
u/s 234B is levied on the unpaid/short paid amount of Advance tax. So
if no default in advance tax or no short payment of advance tax no
penal interest u/s 234B.
We must make sure to deposit all due taxes on our other incomes like
interest incomes well before 31st March of the financial year as
Some examples to understand interest u/s 234B:
people may avoid this interest
by declaring their other incomes to their employers. Employer will
deduct due tax on such incomes as TDS. As all taxes would already have
been deducted there will be no default/short payment of advance tax.
take an example for the FY 2013-14(AY 2014-15), suppose tax on total income is
Rs. 45900. TDS is Rs. 30000. Here Advance tax liability will be
(45900-30000) Rs. 15900.
- In this situation if advance tax of Rs. 15900 is not paid till 31st March 2014, there will be interest levied
u/s 234B on Rs. 15900 till the same is paid as Self Assessment Tax.
suppose Rs. 14000 are paid as advance tax till 31st March 2014,
interest u/s 234B @ 1% will be levied on Rs. 1900 for short payment of
advance tax till the same is paid as Self Assessment Tax.
the same situation suppose the advance tax short paid of Rs. 15900 is paid as self assessment tax on 2nd
April 2014 there will be interest levied
@1% u/s 234B on Rs. 15900 for one month.
- In the same
stuation suppose TDS is Rs. 40900, means the due advance
tax is Rs. 5000 only. There will be no interest levied u/s 234B as
the advance tax liability is less then Rs. 10000.
Some Quick links:
How to make online payment of advance tax?
Due Dates for Advance Tax payment
Calculation of Advance Tax
Interest u/s 234A for delay in filing return
Interest u/s 234C for default in payment of Advance Tax instalment
How to pay Self Assessment Tax