Interest is payable under section 234B when there is a default in payment of Advance Tax.
It is mandatory to pay advance tax in every case where the advance tax payable is Rs 10,000 or more. All heads of income are to be included for the purpose of calculation of Advance Tax.
Advance Tax is NOT applicable when –
- Effective AY 2011-12 – When a taxpayer opts for the scheme of computing business income under section 44AD on presumptive basis @ 8% of turnover, such taxpayer shall be exempted from payment of advance tax for such business.
- Effective AY 2013-14 – A senior citizen (resident individual who is 60 yrs or more) who does not have any income from business & profession, is not liable to pay advance tax.
Here’s when Interest is payable under section 234A.
Interest Calculation under Section 234B–
|Scenario||Amount on which Interest is Payable||Rate of Interest||Period on which Interest is payable|
|A taxpayer failed to pay Advance Tax
has paid advance tax but the amount paid is less than 90% of Assessed Tax*
|Interest is payable on Assessed Tax* when no Advance Tax was paidOR
on Assessed Tax* less Advance Tax
|Simple Interest @1% for every month or part of month||From 1st April of the AY to the date of determination of total income u/s 143(1) or date of regular assessment|
*Assessed Tax refers to tax on total income determined under section 143(1) and tax determined on regular assessment less TDS less relief u/s 90 or 91 less tax credit claimed u/s115JA or 115JD.
Note that by depositing 90% of advance tax by 31st March, a tax payer can avoid interest under section 234B.
If tax is deductible at source but the payer has failed to deduct such TDS, the receiver of such income without deduction is liable to pay advance tax on it.
Do keep in mind to pay your Advance Tax on time, reach out to us firstname.lastname@example.org if you have any questions.