Interest u/s 234B is attracted for non-payment of advance tax or payment of advance tax of an amount less than 90% of assessed tax. So, if you are still unaware of basic concept of advance tax then now its right time to know about advance tax and interest u/s 234B charged to it.

All Individuals (including businessman, salaried, consultants) are required to pay their advance taxes on income earned (after enjoying the benefits of TDS & other credits) in a current FY, if the amount of income tax paid on such income exceeds Rs. 10,000 or more.  Thus, advance tax is payable on the total income of an assessee & is chargeable to tax.

Income Tax Payable – TDS = Assessed Tax (10,000 or more)

Moreover, if the total tax liability after deducting TDS is less than Rs. 10,000, then no payment of advance tax is required and penal interest u/s 234B is also not chargeable.

Now, it’s quite safe time to understand the reasons of attraction of Interest u/s 234B. Interest u/s 234B is chargeable in both the cases, first if you have not paid any advance tax and second you have paid advance tax less than 90% of assessed tax. So, here we have described amount of interest chargeable in both the cases.

Case 1: Non- payment of advance tax

• Interest is payable on assessed tax i.e. tax on the total income less TDS, relief or any deduction.
• The interest liability would be @ 1% p.m or the part of the month.
• Period of paying interest would be from 1^st April of AY till the date of payment of tax or till the date of assessment, whichever is earlier.

Case 2: Payment of advance tax of amount less than 90% of assessed tax.

• Interest is payable on amount of difference between the assessed tax & the advance tax paid.
• The interest liability would be @ 1% p.m or the part of the month.
• Period of paying interest would be from 1^st April of AY till the date of payment of tax or till the date of assessment, whichever is earlier.

Other relevant points:

• In the case of non-resident or a foreign company interest u/s 234B is not leviable as all payments received from Indian sources are subjected to TDS.
• In case of Shipping Business of Non-residents interest u/s 234B is charged.

Let’s see an example of Mr. Karan to understand it better.

Mr. Karan wants to know the amount of interest u/s 234B if tax along with interest is paid on 10/7/2012. Here are the particulars furnished by Mr. Karan for PY 2011-12.

Tax on total income is Rs. 1, 60,000 & TDS is Rs. 10,000.

Advance taxes paid are as follows:

14/09/2011          Rs.20, 000

13/12/2011          Rs.30, 000

15/03/2012          Rs. 60, 000

Calculation:

PARTICULARS	AMOUNT(Rs.)
Tax on Total Income	        1,60,000
Less:  Amount of TDS	         (10,000)
Assessed Tax	        1,50,000
90% of assessed tax  (1, 50,000 *90%)     ————- (A)	       1,35,000
Advance tax paid   (20,000 + 30,000+ 60,000)   —— (B)	        1,10,000
SHORTFALL    (A) – (B)	          25,000

Since advance tax is paid less than 90% of assessed tax, therefore Mr. Karan is liable to pay Interest u/s 234B on shortfall @ 1% for 4 months (Apr-July)

Interest u/s 234B :  Rs. 25,000 * 1% * 4 months = Rs. 1,000.