Interest on non-payment of advance tax under section 234B of Income Tax Act

Section 234B of the Income Tax Act contains interest provisions, which are discussed in this article. Section 234B, in particular, applies when a taxpayer fails to pay advance tax.

Section 208 requires the taxpayer to pay advance tax if the amount of tax payable or estimated tax payable for the financial year is Rs.10,000 or more. In the event that the taxpayer fails to pay the advance tax or pays less advance tax. Then, pursuant to Section 234B, interest would be due.

Interest will be applicable/ payable only in the following two cases, according to section 234B:

1. The taxpayer is required to pay advance tax. However, he does not, pay the same; or

2. The advance tax has been paid by the taxpayer and such amount is less than 90% of the assessed tax liability

Now the question arises, What is Assessed Tax?

The meaning of the term "assessed tax" is covered in Explanation 1 to Section 234B as under:

When the tax is calculated in accordance with Section 143 (1):

The assessed tax is a tax on total income calculated in accordance with Section 143(1).

When the tax is calculated by regular assessment:

The assessed tax is Tax on total income less TDS/ TCS less tax relief granted under section 89/ 90/ 90A/ 91 less tax credit permitted under section 115JAA or section 115JD.

The interest rate under section 234B:

Under Section 234B interest is computed at 1% on Assessed Tax minus Advance Tax/TDS. A part of a month is considered as a complete month. The amount on which interest is levied is rounded off such that any fraction of a hundred is omitted.

For a better understanding of the provisions of section 234B, consider the following

examples: