Section 234B(4) of the Income Tax Act, 1961 provides for the adjustment of interest when there is a subsequent modification of the tax liability due to:
1. Applicable Orders
Interest under Section 234B may be recalculated when tax liability changes due to:
- Appellate orders(CIT(A), ITAT, High Court, Supreme Court)
- Revision orders(under Section 263/264 by PCIT/CIT)
- Rectification orders(Section 154)
- Reassessment orders(Section 147/153A)
2. Effect on Interest Calculation
- If tax increases→ Additional interest is charged on the increased amount
- If tax decreases→ Excess interest paid is refunded with interest (under Section 244A)
3. Key Differences from Section 234B(3)
While Section 234B(3) deals with recalculations from assessment proceedings, Section 234B(4) specifically covers:
- Orders that enhance or reducethe assessed tax
- Situations where the original interest calculationneeds revision
4. Practical Example
Original Case:
- Tax liability: ₹5,00,000
- Advance tax paid: ₹4,00,000
- Shortfall: ₹1,00,000
- Interest (1% for 5 months): ₹5,000
After Revision Order (Tax Reduced to ₹4,50,000):
- New shortfall: ₹50,000
- Recalculated interest: ₹2,500
- Refund due: ₹2,500 (with 0.5% interest under Section 244A)
5. Important Notes
- The interest rate remains 1%for any additional liability
- The period for calculationremains the same (from April 1 of AY till payment)
- Refundsinclude interest from the date of excess payment
- Applies even if the original assessment was correct
6. Comparison Table: Section 234B(3) vs 234B(4)
| FEATURE | SECTION 234B(3) | SECTION 234B(4) |
| Trigger | Regular assessment modifications | Appellate/revision orders |
| Scope | Initial interest calculation | Subsequent adjustments |
| Interest Rate | 1% | 1% |
| Refund Interest | Section 244A applies | Section 244A applies |
