Section 234B of ITA, 1961 : Section 234B: Interest For Defaults In Payment Of Advance Tax

Explanation using Example

Imagine that Mr. Sharma, a salaried employee, also earns income from freelance consulting. For the financial year 2022-2023, his total tax liability is estimated to be ₹1,00,000. According to the provisions of advance tax under Section 208 of the Income-tax Act, Mr. Sharma is required to pay this tax in four installments throughout the year. However, he only pays ₹70,000 by the end of the financial year, which is less than 90% of his total tax liability.

Since Mr. Sharma has paid less advance tax than required, under Section 234B, he is liable to pay simple interest at the rate of one per cent per month or part of a month on the shortfall amount of ₹30,000 (₹1,00,000 - ₹70,000). This interest calculation starts from April 1st following the financial year (i.e., April 1, 2023) until the date his total income is determined under Section 143(1), or if a regular assessment is made, until the date of such regular assessment.

If Mr. Sharma's total income is determined on June 30, 2023, and he has not paid any additional tax by then, he would owe interest for three months (April, May, and June) on the shortfall amount of ₹30,000, which would be ₹900 (₹30,000 x 1% x 3 months).