Section 234B is a provision under the Indian Income Tax Act, 1961, related to the interest charged on the underpayment or non-payment of advance tax. It is applicable to taxpayers who are liable to pay advance tax but fail to do so or pay less than the required amount.
Here’s what you need to know about Section 234B:
Applicability:
Section 234B applies to individuals, businesses, and other entities who are required to pay advance tax but do not meet the criteria for its payment or underpay the amount or, where the advance tax paid by such assessee under the provisions of section 210 is less than 90% of the assessed tax
Interest Calculation:
If a taxpayer is liable to pay advance tax but fails to pay it or pays an amount less than the required installment, they will be charged interest under Section 234B. The interest is levied at a rate of 1% simple interest per month or part of the month on the amount of underpaid tax.
Period of Interest:
The interest under Section 234B is calculated from the first day of the assessment year (1st April of the relevant financial year) until the date when the taxpayer files their income tax return.
Filing of Income Tax Return:
The interest under Section 234B is applicable when the taxpayer files their income tax return after the due date for filing. It is calculated on the amount of tax liability remaining after considering the tax already paid as advance tax and tax deducted at source (TDS).
It’s essential for taxpayers to calculate their advance tax liability accurately and pay it within the specified due dates to avoid interest charges under Section 234B.
Example:
Section 234B of the Indian Income Tax Act deals with the interest charged on the underpayment or non-payment of advance tax. It applies when a taxpayer is liable to pay advance tax but fails to pay it or pays an amount less than the required installment. Let’s consider an example to understand how this interest is calculated:
Example: Rahul is an individual taxpayer who is required to pay advance tax. For the financial year 2023-2024 (assessment year 2024-2025), Rahul estimates his total income and calculates his advance tax liability. However, he fails to pay any advance tax during the year and pays the entire tax liability when filing his income tax return.
Assumptions:
- Rahul’s total income for the year: Rs. 12,00,000
- Assume Income tax rate applicable to him: 10%
- Advance Tax Payable: Rs. 1,20,000 (10% of Rs. 12,00,000)
Calculation of Interest under Section 234B: The interest under Section 234B is charged on the amount of underpaid advance tax. In this example, since Rahul didn’t pay any advance tax during the year, the entire advance tax amount of Rs. 1,20,000 is considered as underpaid.
Interest Rate: 1% per month
Rahul Filled his Income Tax Return on 15 August
Rahul’s advance tax liability: Rs. 1,20,000 Number of Months for which interest is calculated: 5 (from April to August)
Interest Amount: Interest = Advance Tax Liability * Interest Rate * Number of Months Interest = Rs. 1,20,000 * 1% * 5 = Rs. 6000
So, Rahul will have to pay an additional interest of Rs.6000 due to the non-payment of advance tax during the financial year.
It’s important to note that interest under Section 234B is meant to encourage timely payment of advance tax. Taxpayers are required to pay the advance tax in installments as per the due dates specified by the income tax department to avoid interest charges and penalties.
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