· Section 234B provides for levy of interest for default in payment of advance tax. Interest under section 234B is levied in the following two cases:
When the taxpayer has failed to pay advance
tax though he is liable
to pay advance tax; or
Where the advance tax
paid by the taxpayer is less than 90% of the
assessed tax.
·
As per Section 208 of
the Act, advance tax shall be payable by the taxpayer during the financial year if the estimated
tax liability of assessee during
that year is ten thousand rupees or more.
·
Under section 234B,
interest for default in payment of advance tax is levied at 1% per month
or part of a month. The nature of interest is simple interest.
·
Interest under section
234B is levied on the amount of unpaid advance tax. If there is a shortfall in payment of advance tax, then interest is
levied on the amount by which
advance tax is short paid.
·
Interest under section 234B is levied
from the first day of the assessment year, i.e., from 1st
April till the date of determination of income under section 143(1) or when a regular assessment is made, then
till the date of such a regular assessment.
·
In a case where the income is increased
on account of assessment/re- computation, interest under
section 234B will be levied
on the differential amount from the first day of the assessment
year till the date of assessment/re- computation.
·
In a case where
and application is made to Settlement Commission, interest under section 234B will be levied on the
differential amount from the first day of the
assessment year till the date
of making the application.
·
Further, if the income as declared
in the application is increased
by the Settlement Commission, interest
under section 234B will be levied on the differential amount from the first day of
the assessment year till the date of such order.
·
If as a result of
rectification order of the Settlement Commission, income is increased/decreased, interest
will also be increased/decreased accordingly.
·
If the taxpayer has paid any tax before
completion of assessment, then interest will be levied
as follows:
Upto the date of payment of self-assessment tax, interest will be computed
on the amount of unpaid advance tax.
From the date of
payment of self-assessment tax, interest will be levied on the unpaid amount of advance tax after deducting the
self-assessment tax paid by the taxpayer.
·
Mr A is a businessman.
His tax liability as determined under section 143(1) is Rs. 28,400. He has not paid any advance tax
but there is a TDS credit of Rs. 10,000 in
his account. He has paid the balance tax on 31st July i.e. at the time of
filing the return of income.
Will he be liable to pay interest
under section 234B, if yes, then
how much?
In this case, the tax liability
(after allowing credit
of TDS) of Mr A comes to Rs. 18,400 (i.e. Rs. 28,400 – Rs. 10,000)
which exceeds Rs. 10,000 and hence, he will be
liable to pay advance tax. He has not paid any advance tax and hence, he will be liable to pay interest under section
234B. Interest under section 234B will be levied
at 1% per month or part of the month. In this case, Mr A has paid the outstanding tax on 31st July and hence, interest
under section 234B will be levied for the period
from 1st April to 31st July i.e. for 4 months. Interest
will be levied on unpaid
tax liability of Rs. 18,400. Interest at 1% per month on Rs. 18,400 for 4 months
will come to Rs. 736.
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