Section 234B: Interest penalty for non-payment of Advance Tax

By Hiral Vakil on March 7, 2019

Interest is calculated under Section 234B in the following cases:

  1. When advance tax is not paid even though the taxpayer is liable to pay the same
  2. When the advance tax paid is less than 90% of the Assessed Tax*.
    * Assessed tax = (Total tax liability – TDS/TCS)

According to Section 208 of the Income tax act, the assessee is supposed to pay Advance Tax if his Tax Liability of a particular Financial Year is estimated to be Rs. 10,000 or more.

A scenario of interest calculation u/s 234B

Vijay is running a small business. His tax liability for the year is Rs. 32,500. He has not paid any advance tax till 31st March but he has a TDS credit of Rs 5000. The entire tax was paid by him at the time of filing the return of income on 31st July.

In this case, since he has not paid any advance tax, interest will be calculated from the 1st day of the assessment year till the day of paying tax and filing his return.

So interest under section 234B = Rs. 27,500 i.e (Rs 32,500 – Rs 5000) x 4 months x 1% = Rs 1100