CA Hitesh Kothari
Analysis of Interest payable under section 234B of Income tax Act, 1961 under various scenario:
In simple words when advance tax paid is less than 90% of tax payable or advance tax has not been paid, an assessee is liable to pay simple interest @ 1% per month or part thereof from 01st April to date of determination of income under section 143(1) or to the date of regular assessment is made – Section 234B(1).
Amount on which Interest is payable will be = Assessed tax (-) TDS (-) relief under section 90, 90A and 91 (-) Advance tax paid
Explanation 2 to section 234B(1) provides that where assessment is made for the first time under section 147 or 153A, the assessment so made shall be regarded as regular assessment for the purpose of section 234B.
Otherwise section 2(40) defines regular assessment i.e. regular assessment means the assessment made either under section 143(3) or 144.
In the case of MBG Commodities (P) Ltd vs DCIT 1(3), HYD (1321/Hyd/2015), it was pointed out that explanation 2 to section 234B(1) provides clarification that in case where an assessment is made for the first time by taking recourse to section 147 or section 153A, it will still be regarded as regular assessment.
Section 234B(2) provides that if any tax paid as self-assessment tax before 143(1) or regular assessment [as defined in explanation 2 to section 234B(1)], then interest calculation will be as under considering that the date of regular assessment order is passed on 31/12/2019:
| Tax Payable (including surcharge and cess) | Rs. 1,000.00 |
| Advance tax paid on 15/03/2018 | |
| Self Assessment tax paid on 25/09/2018 | |
| Interest u/s 234B will be as under:
– From 01/04/2018 to 25/09/2018 i.e. 6 months @ 1% on Rs. 500 – From 01/10/2018 to 31/12/2019 i.e. 6 months @ 1% on 80 |
Rs. 30.00 Rs. 4.80 |
| (Balance tax Rs. 500 less SA Tax of Rs. 450 add Interest u/s 234B up to Sep 18 of Rs. 30) |
Section 234B(3) provides that if there is enhancement of income and thereby resulting in increased tax liability as result of re assessment or recomputation under section 147 or 153A, then in that case interest will have to be paid increased amount of tax liability and for the period beginning from 143(1) or 143(3) till the date of reassessment or recomputation under section 147 or 153A.
However in many cases AOs recourse to section 234B(3) and levies interest till the date of reassessment or recomputation even there is no increase in tax liability and assessment is made for the first time under section 147 or 153A.
Further section 234B(4) provides that if as a result of order under section 154 (rectification) or 155 (other amendments) or section 250 (CIT – Appeal order) or section 254 (ITAT Appeal order) or section 260 (High Court order) or section 262 (Supreme Court order) or section 263 (revision of order prejudicial to revenue) or section 264 (revision of other order), there is increase or reduction in tax liability, the interest shall also be increased or reduced accordingly.
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Is it mandatory to round off the amount of tax when calculating interest under section 234B