Section 234B of Income Tax Act — Default in Payment of Advance Tax

Have you ever noticed why you are charged an amount as interest when you file your due tax? Well, that could be because you haven’t paid your Advance Tax. Section 234B of the income tax Act, 1961 deals with more of this.

This is the second part of the three-part series of Section 234 as Section 234A, Section 234b and Section 234C.

What is Section 234B?

Section 234B deals with Default in payment of advance tax. Now you must be wondering what advance tax is? Well, it refers to paying your tax due in instalment on dates provided by the IT Department. If you have a Tax Liability in excess of Rs. 10,000 in a particular financial year, the Income Tax Department will require you to pay an advance tax.

Remember that if you are a salaried individual and your yearly total income is from your salary, it is likely that the tax is taken care of by Tax Deducted at Source (TDS) provision. Here, your employer will deduct the TDS and the banks will also deduct it on interest income. But during a financial year, if you have earned any kind of income from other sources than salary, you may have to pay advance tax.

For instance, Jayesh earns a specified salary every month. However, he has an additional source of income every month as rent from one of his properties. Jayesh will have to check whether the tax paid by him is sufficient and then pay advance tax as per the percentages set by the Tax Department.

However, if Jayesh does not do so, he will be liable to pay interest under Section 234B. Salaried individuals, freelancers, businessmen who have tax payable amounting to Rs. 10,000 and more are required to pay advance tax.

Section 234B Interest

The interest under Section 234B is based on situations. The two types of situations are mentioned below:

• Your liability for a particular financial year is more than Rs. 10,000 and you did not pay any advance tax.
• You have paid advance tax. But the advance tax paid is less than 90% of the assessed tax.
• If you are facing any one of these scenarios, you are liable to pay interest under Section 234B. The interest is calculated at 1% on the amount which assessed tax minus advance tax.
• Assessed Tax is your total liability less TDS relief claimed under Section 90/91.

Note then the part of a month will be rounded off to one month as per Rule 119A of Income Tax Rule.

Provisions of Advance Tax

The provisions of Advance Tax are mentioned in Section 207 and Section 208 of the Income Tax Act.

1. Section 207(1)

Tax payable in advance during a financial year will be in accordance with the provisions of Section 208 to 219 in respect of total income of assessee which would be liable to tax charge for an assessment year. This will be immediately following the financial year. Such income being hereafter will be ‘Current Income’.

The provisions will not be applicable to an Indian resident if the individual fits in the following criteria:

• The individual does not have any income that is liable to be charged under the head Profit and Gains of Business or Profession under the IT Act.
• The individual is aged 60 or more during a financial year.

Example Under Section 234B

Janvi is a freelance artist. She has a total tax liability of Rs, 60,000. She paid her tax liability for filing her return on 15th June 2019.

Since her tax liability is more than Rs. 10,000, she has to pay advance tax. The interest tax calculation is mentioned below:

Rs. 60,00013 (April, May, June)= Rs. 1800

Janvi has to pay Rs. 1800 interest under Section 234B.

Conclusion

Follow Income Tax rules when it comes to paying tax cautiously. This will help you save on tax and also unnecessary expenses. Keep in touch with the Income Tax Department to receive timely notifications of any updates regarding delay and interest to be paid.