[Section 234B (1)]: Interest for Default in Payment of Advance Tax

Section 234B(1) of the Income Tax Act, 1961, imposes interest if an assessee either:

1. Fails to pay advance tax(even if liable), or
2. Pays less than 90% of the total tax due(or 100% for non-tax audit cases).

(A) Key Provisions of Section 234B(1)

1. When is Interest Charged?

Interest applies if:

• • Advance tax paid is less than 90%of the actual tax liability (or 100% for non-tax audit cases).
  • No advance tax was paiddespite having taxable income.

2. Rate of Interest

• • 1% per month (simple interest)on the shortfall amount.

3. Period of Interest Calculation

• • From April 1of the assessment year (next financial year)
  • Till the date of actual payment(or regular assessment, if earlier).

4. Tax Liability Considered

Interest is calculated on:

Total tax liability (after TDS/TCS/Reliefs)
Minus:

• • Advance tax paid (if any)
  • Tax deducted/collected at source (TDS/TCS).

(B) Example Calculation

Scenario:

• Total tax liability for FY 2024-25 (AY 2025-26):₹1,00,000
• TDS deducted:₹20,000
• Advance tax paid:₹50,000
• Balance tax paid on 15th July 2025 (after filing ITR).

Step 1: Check if 90% Rule is Met

• 90% of tax liability:₹90,000
• Total payments (TDS + Advance Tax):₹20,000 + ₹50,000 = ₹70,000
• Shortfall:₹90,000 – ₹70,000 = ₹20,000

Step 2: Interest Calculation

• Period:April 1, 2025, to July 15, 2025 → 5 months (rounded to 4 months)
• Interest:₹20,000 × 1% × 4 = ₹800

(C) Key Exceptions & Important Points

1. No Interest if Total Tax < ₹10,000(No advance tax required).
2. Salaried Employees (without business income)generally don’t need to pay advance tax (TDS covers liability).
3. Interest is Mandatory– Even if the assessee was unaware of liability.
4. Adjustments Possible– If tax liability changes after appeal/revision, interest is recalculated.

(D) Comparison with Section 234C (Deferment of Advance Tax)

(E) How to Avoid Section 234B Interest?

✔ Estimate income correctly and pay 90%+ of tax in advance (or 100% if no tax audit).

✔ Use Form 28A (for waiver in genuine hardship cases).

✔ File ITR early to reduce interest period.