This is the second part of a three-part series based on interest penalties levied due to non-compliance of income tax regulations under section 234 of the Income Tax Act, 1961.In this part, a comprehensive view on penalties levied under section 234B will be taken.
Also Read: Section 234A: Interest Penalty on Delayed ITR Filing
Section 234B basically deals with interest penalty charged in case of non-payment, delayed payment or short payment of advance tax for a financial year.
What is advance tax?
Advance tax means that the income tax should be paid in advance on the basis of expected income rather than at the end of the year. A taxpayer needs to pay advance tax only when the income tax liability based on the expected income for the year exceeds Rs. 10,000 after deducting the TDS for the applicable financial year.
Also Read: Know More About Advance Tax
What is section 234B?
Penal provisions under section 234B are invoked under any of the following conditions:
- In case of non-payment of advance tax by the applicable due date
- In case of short payment of advance tax which is calculated to be less than 90% of the ‘assessed tax’
In either of the above cases, penal interest at 1% per month of the assessed tax minus advance tax paid will be applicable under section 234B. For purpose of interest calculation, even if late payment is completed in the middle of the month, a full month’s interest will be charged. Since the due date for paying 100% of advance tax is 31st March of the financial year, the interest is charged from 1st April only under section 234B.
It should be kept in mind that the interest is charged only after deducting TDS (if any) from the advance tax. Also, if you have paid a part of the advance tax within the due date (31st March) then the interest would only be charged on the unpaid tax liability.
Are there any exemptions under section 234B?
There are no exemptions provided to any person under section 234B. However, since advance tax is not paid by certain group of people such as salaried individuals, not all taxpayers are liable to be penalised under Section 234B.
Illustration: Delayed Payment of Advance Tax
Case 1: Suppose Mr. X (aged 40) has an income tax liability of Rs. 50,000 after deducting the TDS for the financial year 2017-18. However, he did not pay the advance tax by the due date. He only paid the tax liability on the 10th of July 2018 while filing ITR.
In the above case, Mr.X was clearly liable to pay advance tax but did not pay within the stipulated due date. Since he had delayed the tax payment by 4 months (April, May, June and July), he is liable to pay interest of Rs. 2000 (50,000 * 1% * 4) under section 234B of the Income Tax Act.
Illustration: Partial Payment of Advance Tax
Case 2: Amit had a tax liability of Rs.78,000 for the financial year 2017-18. However, he just paid Rs. 56,000 as the advance tax by 31st March 2018. He paid the balance tax liability of Rs. 22,000 on 7th June 2018.
In this case, Amit is liable to pay the interest at 1% of the balance tax liability i.e Rs. 22,000 for 3 months (April, May and June). So the interest penalty under section 234B payable by Amit = 22,000 * 1% * 3 = Rs. 660.