In our last article we have discussed due dates for payment of advance tax and what happens when advance tax is not paid on or before the due date. In this article, we will be discussing how to calculate interest under section 234B and 234C.
If for a financial year, tax liability of an assessee is Rs 10,000 or more then tax department in India required them to pay advance tax in installments on or before the due dates.
This means, all assessee including freelancers, self employed businessmen, salaried employees and corporate are required to pay advance tax where the tax liability of the financial year is Rs 10,000 or more.
If you are salaried and your taxable income during the financial year is largely from salary income, it is likely all your taxes have been taken care of by TDS (tax deducted at source). Other than salary income, if you have earned income under any other head (like rent income or income from business or profession) which is liable to tax then you may liable to pay advance tax.
For calculation of advance tax part of a month is rounded off to a full month.
While calculating interest, advance tax is also rounded off in such a way that any fraction of a hundred is ignored.
If short payment of advance tax is due to retrospective amendments in tax law or because of subsequent court ruling, interest under section 234B cannot be imposed.
Calculation of Interest under Section 234B – Applicable to Individual
| Amount in Rupees | Remarks | ||
| Tax liable | 81,576 | ||
| Less: TDS | (12,510) | ||
| Assessed tax (81576-12510) | 69,066 | ||
| 90% of assessed tax (90% of 69066) | 62,159 | ||
| Advance tax paid during FY 2014-2015 | |||
| On September 15th 2014 | 4,800 | ||
| On December 15th 2014 | 11,000 | ||
| On March 15th 2015 | 18,000 | ||
| On March 16th 2015 | 22,000 | ||
| 55,800 | 55,800 | ||
| Shortfall ( Assessed tax minus advance tax) |
13,266 | Since advance for the financial year is less than 90% of the assessed tax, The person is liable to pay interest under section 234B of Income tax act @ 1% simple interest. | |
| Round off | 13,200 | rounded off to nearest 100 | |
| Date of assessment order | 20th January of the assessment year | ||
| April to January | 10 months | ||
| Interest u/s 234B (13200*1%*10) |
1,320 | ||
Calculation of Interest under Section 234C – Applicable to Individual
| Assessed Tax | 76,426 | ||
| Less: TDS | (12,510) | ||
| Assessed Tax after TDS | 63,916 | ||
| 30% of Assessed Tax | 19,175 | ||
| Interest Calculation U/S 234C | |||
| On September 15th 2014 | On December 15th 2014 | On March 15th 2015 | |
| Instalment Payments |
4,800 |
15,800 |
33,800 |
| Advance tax liability |
19,175 (30% of 63916) |
38,350
(60% of 63916) |
63,916 (100% of 63916) |
|
Shortfall |
14,375
(19175-4800) |
22,550
(38350-15800) |
30,116 (63916-33800) |
| Rounded of amount as per rule 119A |
14,300 |
22,500 |
30,100 |
| Rate of Interest u/s 234B |
1% per month |
1% per month |
1% per month |
| Period of default |
3 |
3 |
1 |
| Amount of interest |
429 (14300*1%*3) |
675
(22500*1%*3) |
301 (30100*1%*1) |
| Total Interest Payable U/S 234C |
1,405 (429+675+301) |
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Whether fees paid to an auditor for preparing and filinfg IT Return can be claimed as exemption?