Calculation of Interest under section 234B- Vivacious

As we all are aware that we are in last quarter of the Financial year 2019-20.  We have to make payment of advance tax till 31^st March, 2020. If assessee fails to pay advance tax then he will be liable for payment of interest u/s 234B. therefore today I am mainly focusing on in depth discussion on Section 234B alongwith some examples.

1. Introduction to Section 234B

In every Act different interest is been levied for various kind of delay and defaults. In this article we will discuss vivacious calculation of interest u/s 234B for default in payment of advance tax. Before proceeding ahead, it is indispensable to understand the provisions of Advance tax as pact in Sec. 207 & Sec. 208 of the Income Tax Act, 1961.

2. Liability for Payment of Advance Tax

Section 207(1)

Tax shall be payable in advance during any financial year, in accordance with the provisions of sections 208 to 219 (both inclusive), in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year, such income being hereafter in this Chapter referred to as “current income”

Section 207(2)

These provisions shall not apply to an individual resident in India, who—

(a) does not have any income chargeable under the head “Profits and gains of business or profession“; and

 (b) is of the age of sixty years or more at any time during the previous year

3. Conditions for Liability to Pay Advance Tax

Sec 208 Advance tax shall be payable during a financial year in every case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this chapter, is Rs. 10,000/- or more.

4. When Interest Is Levy under Section 234B [Only in Two Cases]

Section 234B(1)

Subject to the other provisions of this section, where, in any financial year,

a) an assessee who is liable to pay advance tax under section 208 has failed to pay such tax OR,

b) where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax.

Key Note:

As a result of the order of settlement commission, the interest under sec.234B will be levied, even when the advance tax paid was more than 90% of the tax on the total income shown in the return of income or that determined under sub- section (1) of section 143 or on regular assessment and it became less than 90% of the tax found due on the basis of the settlement commission’s order.

5.Rate of Interest under section 234B

The assessee shall be liable to pay simple interest at the rate of 1% per cent for every month or part of a month comprised in the period.

Please note that part of month will be rounded off to one month as per Rule 119A of the Income Tax Rules.

6. Calculation of Interest under section 24B Starting from Which Date and Ending on Which Date

Interest calculation will start from the 1st day of April next following such financial year

a) to the date of determination of total income under sub-section (1) of section 143 and

b) where a regular assessment is made, to the date of such regular assessment.

Key Note: Where an assessment is made for the first time u/s 147 or 153A, the assessment so made is regarded as regular assessment. In case a regular assessment has been made, interest u/s 234B has to be levied upto the date of regular assessment and not up to the date of determination of total income u/s 143(1).

7. Calculation of Interest under section 234B on Which Amount

Interest will be calculated on an amount equal to the

a) Assessed tax or,

b) As the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax.

8. Meaning of Assessed Tax

Explanation 1- In this section,” assessed tax” means,-

a) Tax on the total income determined under sub- section (1) of section 143 and

(Explanation 3.- In Explanation 1 and in sub- section (3),” tax on the total income determined under sub- section (1) of section 143″ shall not include the additional income- tax, if any, payable under section 143.)

b) Where a regular assessment is made,

ASSESSED TAX WILL BE CALCULATED AS FOLLOWS

Explanation 2.- Where in relation to an assessment year, an assessment is made for the first time under section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section.

Key Note:

1. All companies are liable for payment of advance tax having regard to the provisions contained u/s 115JB. Consequently, interest u/s 234B will be calculated after taking into consideration sec. 115JB. However interest u/s 234B can be levied only on that deficiency in the payment of advance tax which arises after giving the credit to set-off of brought forward tax credit u/s 115JAA.

2. The board has clarified that in case of a regular assessment u/s 172(7), the non-resident assessee is liable to pay interest u/s 234B and also entitled to receive interest u/s 244A as the case may be.

9. Some Examples of Advance Tax and Interest u/s 234B are as under:

Q.1 Ankit (35 Years) is running a gift shop. Tax liability for the year is Rs. 50000/-. He has not paid any advance tax till 31^st March. Entire Tax was paid by him before the due date of filing return of income. Will he be liable to pay any interest u/s 234B?

Ans: As per sec. 208, ankit is liable for advance tax since his estimated tax liability is Rs. 50,000/- (Rs. 10,000/- or more). In the given case he fails to pay advance tax, therefore he is liable to pay interest u/s 234B.

Q.2 Arpit (20 Years) is running a mobile shop. Tax liability for the year is Rs. 50000/-. He has paid Rs. 45,000/- advance tax till 15th March of previous year. Balance Tax was paid by him before the due date of filing return of income. Will he be liable to pay any interest u/s 234B?

Ans: In the given case, since assessee have paid 90% of his tax liability till 15^th march he is not liable to pay 234B interest.

Q.3 Nihit (22 Years) is running a mobile shop. Tax liability for the year is Rs. 50000/-. He has paid Rs. 40,000/- advance tax till 15th March of previous year. Balance Tax was paid by him before the due date of filing return of income. Will he be liable to pay any interest u/s 234B?

Ans: In the given case the assessee has paid only 80%(40000/50000) of his tax liability as advance tax till 15^th march of the previous year. Since the advance tax paid by him is less than 90%, hence he is liable for interest u/s 234B.

10. Self-Assessment Tax Paid by Assessee before Date Of Determination of Total Income under Section 143(1)

234B(2) Where, before the date of determination of total income under sub- section (1) of section 143 or completion of a regular assessment, tax is paid by the assessee under section 140A or otherwise-

(i) interest shall be calculated in accordance with the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest, if any, paid under section 140A towards the interest chargeable under this section;

(ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax.

11. Rate Of Interest under section 234B And It’s Calculation When An Application For Self Assessment Tax Is Being Made

234B(2A)(a)

• where an application for settlement has been made for any assessment year under section 245C(1),
• the assessee shall be liable to pay simple interest at the rate of 1 per cent for every month (or part of a month)
• comprising the period commencing on the first day of April of such assessment year and ending on the date of making such application, on the additional amount of income-tax.

12. Rate Of Interest under section 234B And It’s Calculation When Amount of Total Income Disclosed In Settlement Application Is Increased

Section 234B(2A)(b)

• where as a result of an order of the Settlement Commission under section 245D(4) for any assessment year,
• the amount of total income disclosed in the application under section 245C(1) is increased,
• the assessee shall be liable to pay simple interest
• at the rate of 1 per cent for every month (or part of a month) comprised in the period commencing on the first day of April of such assessment year and ending on the date of such order, on the amount by which the tax on the total income determined on the basis of such order exceeds the tax on the total income disclosed in the application filed under section 245C(1).

Section 234B(2A)(c)

• Where, as a result of a order under section 245D(6B),
• the amount on which interest was payable under the above provisions has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly.

13. Calculation Of Interest In Case The Amount On Which Interest Was Payable Increased As A Result Of Order Of Reassessment Or Recomputation under section 147 or 153A

Section 234B(3)

• Where, as a result of an order of re- assessment or
• re- computation
• under section 147 or 153A,
• the amount on which interest was payable in respect of shortfall in payment of advance tax for any financial year under sub-section (1) is increased,
• the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the first day of April next following such financial year and ending on the date of the re- assessment or re- computation under section 147 or 153A, on the amount by which the tax on the total income determined on the basis of the reassessment or re- computation exceeds the tax on the total income determined under sub- section (1) of section 143 or on the basis of the regular assessment as referred to in sub section (1), as the case may be.

Key Note:

1. In order to levy interest u/s 234B(3) in reassessment proceedings u/s 147, there is no need for a pre- existing levy of interest u/s 234B(1) in regular assessment and interest can be levied for first time in reassessment completed u/s 147 – South Indian Bank Ltd. v. CIT [2010] 191 Taxman 301 (Ker.).

2. Interest can be levied u/s 234B(3) in second revision of assessment u/s 147 even if in first reassessment proceeding completed under very same provision, interest u/s 234B was not levied.

Section 234B(4)

• Where, as a result of an order
• under section 154 or
• section 155 or
• section 250 or
• section 254 or
• section 260 or
• section 262 or
• section 263 or
• section 264 or
• an order of the Settlement Commission under subsection (4) of section 245D,

the amount on which interest was payable under sub- section (1) or sub- section (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and-

(i) in a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply, accordingly;

(ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded.

234B(5) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years.

Key Notes:

1. Cash seized during search should be treated as advance tax for the purpose of computation of interest u/s 220(2) and sections 234A, 234B and 234C.

2. If shortfall in payment of advance tax is mainly because of a bonafide dispute regarding the interpretation of law, interest u/s 234B is not applicable.

3. Sections 234A, 234B and 234C in clear terms impose a mandate to collect interest at the rates stipulated therein. The expression “Shall” used in the said section cannot by any stretch of imagination be construed as “May”. There are sufficient indications in the scheme of the Act to show that the expression “Shall” used in the sections 234A, 234B and 234C is used by the Legislature deliberately and it has not left any scope for interpreting the said expression as “May”.

4. Interest cannot be charged on a liability which comes into existence due to retrospective amendment.

In case of any query author can be reached at [email protected] or you may call on 98275454575.

(Republished with Amendments by TaxGuru Team)