According to Section 234B of the Income Tax Act, an interest payment could be imposed if there’s a delay in the payment of advance tax. Such an interest may also be imposed if the advance tax payment amount is below 90% of the assessed tax.
Here’s everything you need to know about Section 234B of the Income Tax Act -what is advance tax, who should pay it and three scenarios where taxpayers will be liable to pay 1% interest. Read on!
Advance tax is the tax paid in installments throughout the year instead of paying a lump sum at the end of the year. The installment payment has to be done on or before the due date set by the Income Tax Department. This process of advance tax payment helps in an efficient tax collection process. A defaulter of this tax will have to pay interest as per Section 234B of the Income Tax Act, 1961.
Any salaried, professional or self-employed individual with a total tax liability above INR 10,000 in a financial year should pay advance tax. They will only be paying the advance tax when their tax payable post adjustment of TDS (Tax Deducted at Source) is Rs. 10,000 or above.
An interest rate of 1% is subjected each month if:
The taxpayer will have to pay this interest till the date of delay in payment.
The due date of advance tax payment is July 31 of the fiscal year. Any payment made after this date of the assessment year will come under chargeable delayed payments.
Let’s divide the applicable interest in the following three ways!
Let’s say, the tax amount payable by Rohit is Rs.60,000. There’s no TDS, and he has to pay Rs.60,000 as tax (this is above Rs.10,000). Hence, he will be paying advance tax. He paid this sum on June 15 while filing his ITR. In this case, he will be paying interest under Section 234B for the months of June, May and April.
Therefore, Rohit will pay an interest of Rs.1,800 (3 x 1% x Rs.60,000) under Section 234B of the Income Tax Act.
The tax liability of Mohan for FY 2020-21 is Rs. 80,000. The TDS is Rs. 40,000. He paid Rs. 5,000 in March and the balance in July.
So, Mohan’s assessed tax amount = Tax liability – TDS = Rs. (80,000 – 40,000) = Rs. 40,000. His tax liability was Rs. 40,000 or 90% of the amount. Here, 90% of the tax amount = 90% x Rs. 40,000 = Rs. 36,000. Hence, by March he must have paid an advance tax of Rs. 36,000, but he paid just Rs. 5,000.
The IT department will impose interest in the months of July, June, May and April for the delay in part payment of advance tax.
Therefore, interest payable for Mohan = Rs. [4 x 1% x Rs. (36,000 – 5,000)] = Rs. 1,240.
The tax amount for Rita is Rs. 60,000, and she paid Rs. 20,000 as advance tax in March. While filing ITR in June, she paid the outstanding amount. She must have paid Rs. 54,000 (90% of Rs. 60,000) as advance tax. However, she has paid only Rs. 20,000, which is below 90% of the total amount.
Now, Rita will have to pay interest for the months of June, May and April under Section 234B. The interest amount for Rita will be [3 x 1% x Rs.(60,000 – 20,000)] = Rs.1,200.
You must be up to date with the tax compliance. Otherwise, you will be liable to pay penalties by way of interest. Don’t forget to pay your advance tax on or before the due date to avoid interest payments under Section 234B of the Income Tax Act.
Ans: The assessed tax requires the following to be subtracted from your income tax:
• Tax credit under Section 115JD/115JAA
• Tax deduction or tax relief such as those under Section 89 and Section 90
• Tax collected at source or tax deducted at source
Ans: As per Section 234B of the Income Tax Act, 1961, the IT Department will levy interest from the assessment year’s 1st day till the time of the assessment under Section 143(1) or the regular assessment.
Ans: Yes, Section 234B offers advance tax exemption to resident senior citizens. However, they should not have any earnings under the section of income from profession and business. Keep in mind that he/she must be above the age of 60.
Ans: Partnership firms, companies and assessees availing presumptive taxation schemes will have to pay advance tax. Any taxpayer whose tax liability goes above Rs. 10,000 post subtraction of TCS or TDS will have to make an advance tax payment.
Ans: Under Section 234A, the Income Tax Department levies interest on a taxpayer for delaying income tax return (ITR) filing. The interest payable will be 1% each month/part of any month on the remaining tax amount.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
|Section 194IB||Section 44AA||Section 80E|
|Section 195||Section 80EEA||Section 80DD|
|Section 80CCC||Section 80GG||Section 80 G|
|Section 54F||Section 1941A||Section 10|
|Section 194Q||Section 192||Section 269SS|
|Section 80DDB||Section 44AD||Section 194C|
|Section 194A||Section 194H||Section 80D|
|Section 80C||Section 80C, 24(b), 80EE & 80EEA||Section 234A|
|Section 50C||Section 80C||Section 80EEA|
|Section 194B||Section 194J||Section 206C|
|Section 80CCG||Section 80 EEB||Section 24Q|
|Section 40b||Section 194C||Section 54EC|
What is Form 26QB for TDS? How to Download and Submit it?While purchasing a property, buyers are liable to pay various taxes. The Finance Act, 2013 made TDS... Read More »
PF Withdrawal Rules 2023 – Rules, Documents Required and TypesEPF/PF Withdrawal Employees’ Provident Fund (abbreviated as EPF) is a popular retirement sav... Read More »
Stamp Duty and Property Registration Charges in Delhi 2023It is compulsory for property buyers in the Capital to pay stamp duty in Delhi during property regi... Read More »
Income Tax Return – Documents, Forms and How to File ITR Online AY 2023-24In India, it is mandatory for all taxpayers who earn more than the basic tax exemption limit to fil... Read More »
What is Section 80CCD – Deductions for National Pension Scheme and Atal Pension YojanaThe Income Tax Act provides a number of deductions and tax benefits to taxpayers, so they can strat... Read More »
Tax on Dividend Income: Sources, Tax Rate and TDS on dividend incomeWhat are Dividends? Companies may raise funds for running their operations by selling equity. Th... Read More »
Section 112A of Income Tax Act: Taxation on Long-Term Capital GainsWhat is Section 112A? Section 112A of the Income Tax Act was announced in Budget 2018 to replace... Read More »
Section 206AB of Income Tax Act: Eligibility And TDS RateSection 206AB was introduced in the Finance Bill 2021 as a new provision pertaining to higher deduc... Read More »
What is a Credit Note in GST – Example, Format and StepsA GST Credit Note is mandatory for any GST-registered supplier of goods or services. As a supplier,... Read More »
Exemptions and Deductions Under Section 10 of Income Tax ActWhat Is Section 10 of the Income Tax Act? Section 10 of the Income Tax Act, 1961 provides tax-sa... Read More »
Section 57 of the Income-tax Act – Income from Other SourcesIt is quite likely that many entities - individuals as well as businesses - have multiple sources o... Read More »