Section 234B and 234C – Interest on defaults and deferment in payment of advance tax

As per section 208 of income tax act 1961, if advance tax payable as calculated in accordance to the provisions of this act is 10000 rupees or more then it shall be payable during the financial year in instalments before the due date as specified under section 211.

Section 234B and 234C deals with provisions related to interest payable for defaults in payment of advance tax and deferment of advance tax respectively.

Interest on default and deferment of advance tax-Section 234B and 234C

How to calculate interest for defaults in payment of advance tax – Section 234B

As per section 234B of Income Tax Act 1961, assessee will be liable to pay simple interest at the rate of 1% per month or part of the month if advance tax has not been paid or it’s less than 90% of the assessed tax.

Assessed tax means, tax liability as calculated at the end of the assessment year under section 143(1) or on regular assessment under section 143(3)/144 or on first time assessment under section 147 or 153A minus TDS/TCS collected minus tax relief minus MAT credit allowed to be set off u/s 115JAA.

Interest under section 234B has to be calculated at the rate of 1% starting from 1st of April of the relevant assessment year to the date of determination of income or to the date of regular assessment.

Amount on Which Interest to be calculated under section 234B

Most important thing in case of calculation of interest on advance tax for default in payment is the amount of tax on which it should be calculated.

As per section 234B of Income Tax Act 1961, interest has to be paid on assessed tax minus advance tax if any.

If after 31st march, any tax has been paid by the assessee then interest under section 234B is to be calculated on assessed tax minus advance tax paid if any minus tax paid after 31st march.

If tax has been paid after 31st march then we suggest to calculated interest on advance tax in two parts.

In the first part you need to calculate interest on assessed tax minus advance tax paid if any. It has to be calculated for the period starting from the 1st April of the relevant assessment year to the date of payment of such tax.

In the second part, interest under section 234B has to be calculated for the period starting from the date of tax payment till the date of regular assessment on assessed tax minus advance tax paid if any minus tax paid before or on self assessment u/s 140A.

Now you can add interest calculated on the first part with interest calculated on the second part to get final interest to be paid under section 234B.

Where due to an order of reassessment or recomputation, the amount on which interest payable is increased, the assessee shall pay simple interest at the rate of 1% per month or part of the month starting from the date following the date of determination of total income to the period following the date of such regular assessment and ending on the date of the reassessment or recomputation.

Where due to an order under section 154 or 155 or 250 or 254 or 260A or 262 or 263 or 264 or 245D (4) the amount of tax has been increased r reduced, the interest shall also be increased or reduced accordingly.

How to calculate interest for deferment of advance tax under section 234C

Assessee liable to pay advance tax is required to pay it in various instalments. If such instalments are not paid before the due date as mentioned in section 211 of income tax act 1961 then simple interest under section 234C at the rate of 1% per month or part of the month is payable for a period of 3 months for every deferment, except for the last instalment of 15th March where it will be 1% for one month.

Table below shows how interest under section 234C is calculated for deferment of advance tax.

Due date of instalment Period of interest Amount on which simple interest @ 1% is to be paid
For Companies For other than Companies
15th June 3 months 15% of tax due on returned income minus advance tax paid up to due date Not applicable.
15th September 3 months 45% of tax due on returned income minus advance tax paid up to due date 30% of tax due on returned income minus advance tax paid up to due date
15th December 3 months 75% of tax due on returned income minus advance tax paid up to due date 60% of tax due on returned income minus advance tax paid up to due date
15th March One month 100% of tax due on returned income minus advance tax paid up to due date 100% of tax due on returned income minus advance tax paid up to due date

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