ITD has fixed the due dates to pay advance tax. Further, According to Section 208 of the Income-tax Act, the assessee has to calculate advance tax and pay if the tax Liability of a particular Financial Year is INR 10,000 or more. Failure or shortfall in the payment of advance tax attracts interest @ 1% per month or part of it under section 234B of the Income Tax Act.
What is section 234B?
Section 234B is the penalty interest imposed on the taxpayers in case there is no payment of advance tax during the assessment year. Hence, the liability of payment of penalty u/s 234B arises after the end of the Financial Year till the date of payment of tax.
When is section 234B applicable?
Calculation of the interest under section 234B takes place in the following cases:
- When no payment of advance tax is made even though the taxpayer is liable to pay the same.
- When the advance tax paid is less than 90% of the Assessed Tax.
Assessed tax = (Total tax liability – TDS/TCS) - The reduction in the amount of advance tax paid is considered only once when calculating the interest payable under section 234B if the taxpayer files an updated ITR.
Apart from 234B, the following interest/fee are also covered under section 234:
- Interest for default in filing ITR – Section 234A
- Deferred payment of Advance Tax – Section 234C
- Fee for late filing of ITR – Section 234F
Example of Interest u/s 234B of Income Tax Act
Case 1: TDS is not deducted
Ria’s total tax liability is INR 40,000. Ria paid this amount on 16th June while filing her income tax return. No tax deduction was there in her case.
In this case, as Ria’s total tax liability is more than INR 10,000 she was liable to pay advance tax. Since the advance tax has not been paid, she will be levied interest u/s 234B.
The calculation of Interest under section 234B is as follows:
| Particulars | Amount |
| Assessed tax | INR 40,000 |
| Amount on which interest will be payable | INR 40,000 |
| Rate of interest | Simple interest @1% per month |
| Period for which interest will be payable | 1st April to 16th June (i.e., 3 months) |
| Interest payable (INR 40,000 x 1% x 3 months) | INR 1200 |
Case 2: TDS is deducted
Vijay is running a small business. His tax liability for the year is INR 32,500. He has not paid any advance tax till 31st March but he has a TDS credit of INR 5000. Also, 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.
The calculation of Interest under section 234B is as follows:
| Particulars | Amount |
| Assessed tax | INR 32,500 |
| Amount on which interest will be payable | INR 27,500 |
| Rate of interest | Simple interest @1% per month |
| Period for which interest will be payable | 1st April to 31st July (i.e., 4 months) |
| Interest payable (INR 27500 x 1% x 4 months) | INR 1100 |
Case 3: Shortfall in payment of advance tax
Mohan had a total tax liability of INR 60,000, out of which INR 45,000 was paid by him on 15th March as advance tax. The remaining balance of INR 15,000 was paid by him on 20th June while filing the income tax return.
As discussed earlier, the taxpayer needs to pay 90% of the assessed tax as advance tax.
In this case, Mohan should have paid INR 54,000 before 31st March. However, he paid INR 45,000 which is less than 90% of the assessed tax, he is liable to pay interest u/s 234B on the remaining INR 15,000.
The calculation of Interest under section 234B is as follows:
| Particulars | Amount |
| Assessed tax | INR 60,000 |
| Amount on which interest will be payable | INR 15,000 |
| Rate of interest | Simple interest @1% per month |
| Period for which interest will be payable | 1st April to 20th June (i.e., 3 months) |
| Interest payable (INR 15000 x 1% x 3 months) | INR 450 |
FAQs
The interest u/s 234B is levied on taxpayers if they default in advance tax payment and is levied after the financial year. While interest u/s 234C is levied upon those taxpayers who defer in advance tax during the financial year.
Interest = Shortfall amount @1% x number of months delayed.
Paying advance tax on time and in accordance with the dates specified by the Income Tax Department is the only method to avoid paying interest under Section 234B.
No, Interest under section 234B is not applicable to the resident senior citizens. Such senior citizens must be of age 60 years or above. However, they must not have income under the head of business and profession.
Hey @Shweta_Saini
Advance tax is a ‘Pay as you earn’ tax, so it is required to be paid during the financial year in four different instalments in case your Taxable Liability is more than INR 10,000 for the financial year which stands true for you.
The due dates for advance tax installments are:
If you are eligible to pay advanced tax but have not paid advance tax, the penalty will be applicable u/s 234B and 234C.
Let us know if you have any further questions!
Hi Team, I had assumed that I will be able to pay advanced tax before March because I thought I could go for presumptive tax filing. But now it looks like I cannot opt for a presumptive taxation scheme. So does it mean that I did not pay the advanced quarterly tax that I was supposed to pay?
If yes, what is the penalty in every case or are there some exceptions to avoid this interest penalty?
Thanks in advance!
Hey @riya_gupta
You will be charged an interest penalty under section 234C for the delay/non-payment of advance tax during the year @1% per month on the shortfall amount. Additionally, under Section 234B a penalty interest is imposed on the taxpayers in case the advance tax payment is less than 90% of assessed tax liability during the year.
You can avoid interest u/s 234B by paying at least 90% of your assessed tax liability by March 15, 2021.
Hope this helps!
Hey @TeamQuicko
I have LTCG of more than 7 lakhs from the equity for this year. Is there a way to reduce my tax liability? Also, do I have to pay the tax in advance? If I fail to do so, what will be the penalty/interest percentage I have to pay during my tax filing in 2020?
Hey @ViraajAhuja47, you can set off against non-speculative business loss like F&O for the current year. Long-term capital losses for the previous as well as the current year. Yes, you are required to pay advance tax in case your tax liability is more than INR 10,000 for the FY. The penalties for non-payment of advance tax are:
Non-payment of Advance Tax u/s 234B 3: Interest at 1% in case the taxpayer fails to pay 90% of the tax liability in the same FY
Delay in Payment of Advance Tax u/s 234C 1: if there is a delay in tax payment than interest @ 1% is applicable.
Hello @S_P
Tax paid on or before 31/03/2021 will be considered as advance tax for FY 2020-21. So a trader can determine the profits between 15th March to 31st March and pay the tax on 31st March, there will be no interest levied.
Hope this helps!
Hi @TEst_Netflix,
Tax audit is applicable when:
You can use this tool to determine if tax audit is applicable to you:
It is always a good practice to file your ITR and report all your financial transactions to avoid notice from the Income Tax Department. Especially after the SEBI and CBDT’s data partnership. If your total income is below the basic exemption limit, you won’t have any tax liability.
Do I have to pay Advance Tax if the TDS for the year is sufficient to cover tax liabliltiy?
Does Dividend on equity shares attract separate Advance Tax or is it just another source of income?
Hi @vivek25,
You are liable to pay advance tax if your total outstanding tax liability for the financial year after TDS is above INR 10,000.
To calculate your advance tax liability you need to add your estimated income for the financial year from all sources including - Salary, House Property, Capital Gains, Business & Profession and other sources.
Next, subtract all eligible deductions, expenses, and Tax Credit available to you.
Now, if your outstanding tax liability is above INR 10,000, you need to pay advance tax to avoid penalty u/s 234B and 234C.
Hope this answers your query
You can also use the advance tax calculator to know your advance tax liability under the old and new tax regime
https://tools.quicko.com/advance-tax-calculator/
Hi
When I pay the advance tax through the ZERODHA-QUICKO platform, does it get saved/stored? For example I have paid for Q1. so when I have to pay for Q2, will this be automatically calculated?
Thanks