Section 234B of the Income Tax Act - Interest on Delayed Payment of Advance Tax

Section 234B of the Income Tax Act - Interest on Delayed Payment of Advance Tax. Section 234B of the Income Tax Act is a provision that deals with the interest charged by the Income Tax Department in case of default or delay in the payment of advance tax by a taxpayer. This interest is levied to ensure that taxpayers pay their taxes within the prescribed due dates and do not defer their tax liabilities till the end of the financial year. The section plays an important role in the Indian tax compliance framework by penalizing late payment and encouraging timely tax deposits.
What is an Advance Tax?
Advance tax, commonly known as the "pay-as-you-earn" tax, refers to the system where individuals or businesses pay their income tax in installments throughout the financial year rather than in a lump sum at the end. As per the Income Tax Act, if your total tax liability in a financial year exceeds Rs 10,000 after reducing TDS or TCS and applicable relief under sections like 89, 90, or 91, you are required to pay advance tax. Advance tax is applicable to salaried employees, freelancers, professionals, and businesses alike.
Who is Required to Pay Advance Tax?
All taxpayers whose income tax liability exceeds Rs 10,000 in a financial year are liable to pay advance tax. This includes salaried employees if their employer has not deducted sufficient TDS, self-employed individuals, businesspersons, LLPs, and companies (Private Limited Company, Public Limited Company, One Person Company). Even individuals earning income from sources like capital gains, rent, or interest are required to assess their tax liability and pay advance tax accordingly. Senior citizens who do not have income from business or profession are exempted from paying advance tax.
What is Assessed Tax?
Assessed tax refers to the total tax liability on the income of the taxpayer after accounting for various deductions such as TDS, TCS, tax reliefs under sections 89, 90, 90A, and 91, and any tax credit under Sections 115JAA or 115JD. In simpler words, it is the net tax amount payable by the taxpayer after adjusting all credits and deductions. The interest under Section 234B is levied based on this assessed tax if the taxpayer fails to pay at least 90% of this amount as advance tax.
Interest on Delayed Payment of Advance Tax
Section 234B of the Income Tax Act mandates that interest will be charged on the taxpayer if there is a failure to pay advance tax or if the advance tax paid is less than 90% of the assessed tax. The interest under this section is calculated at the rate of 1% per month or part of the month, from the beginning of the assessment year (i.e., April 1 of the following financial year) to the date of actual payment of tax or the due date of filing the income tax return, whichever is earlier.
Conditions Under Which Interest Under Section 234B is Levied
There are mainly two scenarios in which interest under Section 234B becomes applicable:

The taxpayer has not paid any advance tax during the financial year, and their assessed tax liability is more than Rs 10,000.

The taxpayer has paid advance tax, but the amount is less than 90% of the total assessed tax liability.

In both cases, the taxpayer is liable to pay interest on the shortfall or unpaid tax amount.
Calculation of Interest Under Section 234B
The interest is computed at a simple interest rate of 1% per month or part thereof on the unpaid portion of the assessed tax. The interest is calculated from April 1 of the assessment year to the date when the return of income is filed or the tax is paid, whichever is earlier. The amount on which interest is calculated is rounded off, and any fraction of a hundred rupees is ignored. Similarly, part of a month is considered a full month for the purpose of interest calculation.
Examples of Interest Calculation
Let us understand this with the help of examples:
Example 1: Kritika is liable to pay an assessed tax of Rs 50,000. She did not pay any advance tax during the financial year and paid the entire amount on June 15. Interest under Section 234B will be calculated from April to June, i.e., three months. Interest = Rs 50,000 * 1% * 3 = Rs 1,500.
Example 2: Mita’s total tax liability is Rs 1,00,000. Out of this, Rs 60,000 was deducted as TDS. She paid Rs 20,000 in March and the balance in July. Her assessed tax = Rs 1,00,000 - Rs 60,000 = Rs 40,000. She was required to pay 90% of Rs 40,000 = Rs 36,000 by March. Since she paid only Rs 20,000, the shortfall is Rs 16,000. She paid the remaining in July, so interest is payable for four months (April to July). Interest = Rs 20,000 * 1% * 4 = Rs 800.
Example 3: Shekhar has a total tax liability of Rs 70,000. He paid Rs 30,000 in March as advance tax and the remaining at the time of return filing in June. He should have paid 90% of Rs 70,000 = Rs 63,000, but he paid only Rs 30,000. Therefore, he is liable to pay interest on the balance Rs 40,000 for three months. Interest = Rs 40,000 * 1% * 3 = Rs 1,200.
Updated Return and Impact on Interest Under Section 234B
If a taxpayer files an updated return of income under Section 139(8A), any additional tax liability computed will also attract interest under Section 234B. However, the advance tax paid earlier will be considered only once for the calculation of interest. This means if you pay the balance tax while filing an updated return, you must also calculate the additional interest liability accordingly.
Assessment Year 2025-26 – Special Case
For the Financial Year 2024-25 (Assessment Year 2025-26), the due date for filing ITR for non-audit cases has been extended to September 15, 2025. Hence, in this case, interest under Section 234B will be calculated from April 1, 2025, to September 15, 2025. This change applies only for this particular assessment year.
How to Avoid Interest Under Section 234B of the Income Tax Act?
To avoid being charged interest under Section 234B, taxpayers must ensure that they make a correct estimate of their total tax liability and pay at least 90% of the assessed tax through advance tax. Taxpayers can estimate their income based on previous earnings or projected profits and calculate their tax accordingly.
It is highly advisable to consult a Compliance Calendar LLP Expert to accurately compute the tax liability and plan advance tax installments. By paying advance tax on time, taxpayers not only avoid interest under Section 234B but also ensure smooth and penalty-free ITR filing. Using tools like an advance tax calculator can be helpful in assessing the correct advance tax liability. Timely compliance also helps avoid further penalties under other related sections such as 234A (delay in filing return) and 234C (default in installment-wise advance tax).
Conclusion
Section 234B of the Income Tax Act is an important provision that enforces timely compliance with advance tax rules. Taxpayers must remain vigilant about their tax obligations, especially if their income is not subject to regular TDS, such as rental income, capital gains, or business income. Failing to pay advance tax not only leads to interest liabilities but also invites scrutiny from the Income Tax Department.
Being proactive in tax planning and taking professional assistance from Compliance Calendar LLP can help avoid interest on delayed payment of advance tax. Filing the return within the due date and ensuring 90% of the assessed tax is paid on time will help you stay compliant and avoid unnecessary financial burden due to interest and penalties. You can connect through mail at info@ccoffice.in or Call/Whatsapp at +91 9988424211.
FAQs
Q1. What is Section 234B of the Income Tax Act?
Ans. Section 234B deals with interest charged on taxpayers who either fail to pay advance tax or pay less than 90% of their total tax liability as advance tax. The section mandates an interest of 1% per month or part thereof on the unpaid tax amount, calculated from April 1 of the assessment year till the date of payment or return filing, whichever is earlier.
Q2. When is interest under Section 234B applicable?
Ans. Interest under Section 234B becomes applicable in two situations: (i) The taxpayer has not paid any advance tax despite having a tax liability of Rs. 10,000 or more after TDS. (ii) The taxpayer has paid advance tax but it is less than 90% of the total assessed tax liability.
Q3. What is the rate of interest charged under Section 234B?
Ans. The interest rate is 1% per month or part of a month. This is a simple interest rate applied to the shortfall amount from the start of the assessment year (April 1) until the date of actual tax payment or filing of the return.
Q4. How is the period of interest calculated under Section 234B?
Ans. Interest is calculated from 1st April of the assessment year till the date of filing of the income tax return or the date of payment of the tax due, whichever is earlier. Even if the delay is just a few days in a month, the entire month is counted.
Q5. What is considered as 'assessed tax' for the purpose of Section 234B?
Ans. Assessed tax refers to the total tax liability determined on the basis of returned income, after deducting TDS/TCS, tax relief under Sections 89, 90, 90A, 91, and tax credits under Sections 115JAA/115JD. The shortfall in payment of advance tax is calculated against this assessed tax.
Q6. Is interest under Section 234B applicable to senior citizens?
Ans. Senior citizens (aged 60 years or more) who do not have income from business or profession are exempted from paying advance tax and hence are not liable to pay interest under Section 234B, even if their tax liability exceeds Rs. 10,000.
Q7. Can interest under Section 234B be waived or reduced?
Ans. No, interest under Section 234B is a mandatory levy and cannot be waived or reduced by the Assessing Officer. It is automatic and applies as per the provisions of the Income Tax Act. However, in rare cases involving natural calamities or CBDT directions, relief may be considered.
Q8. How does the filing of an updated return impact interest under Section 234B?
Ans. If an updated return is filed under Section 139(8A), any additional tax liability computed will attract interest under Section 234B. However, the advance tax already paid is considered only once while computing interest, and the shortfall amount becomes chargeable again from 1st April of the assessment year.
Q9. What happens if I pay my entire tax at the time of ITR filing instead of advance tax?
Ans. If you pay the full tax liability at the time of filing your ITR and your tax liability was more than Rs. 10,000 after adjusting TDS, you will still be liable to pay interest under Section 234B from April 1 till the date of filing the return for non-payment of advance tax.
Q10. How can I avoid interest under Section 234B?
Ans. To avoid interest under Section 234B, ensure that you:\n- Estimate your annual income accurately. Compute your tax liability early in the financial year. Pay at least 90% of your total tax liability as advance tax within the prescribed due dates.

Section 234B of the Income Tax Act is a provision that deals with the interest charged by the Income Tax Department in case of default or delay in the payment of advance tax by a taxpayer. This interest is levied to ensure that taxpayers pay their taxes within the prescribed due dates and do not defer their tax liabilities till the end of the financial year. The section plays an important role in the Indian tax compliance framework by penalizing late payment and encouraging timely tax deposits.

What is an Advance Tax?

Advance tax, commonly known as the "pay-as-you-earn" tax, refers to the system where individuals or businesses pay their income tax in installments throughout the financial year rather than in a lump sum at the end. As per the Income Tax Act, if your total tax liability in a financial year exceeds Rs 10,000 after reducing TDS or TCS and applicable relief under sections like 89, 90, or 91, you are required to pay advance tax. Advance tax is applicable to salaried employees, freelancers, professionals, and businesses alike.

Who is Required to Pay Advance Tax?

All taxpayers whose income tax liability exceeds Rs 10,000 in a financial year are liable to pay advance tax. This includes salaried employees if their employer has not deducted sufficient TDS, self-employed individuals, businesspersons, LLPs, and companies (Private Limited Company, Public Limited Company, One Person Company). Even individuals earning income from sources like capital gains, rent, or interest are required to assess their tax liability and pay advance tax accordingly. Senior citizens who do not have income from business or profession are exempted from paying advance tax.

What is Assessed Tax?

Assessed tax refers to the total tax liability on the income of the taxpayer after accounting for various deductions such as TDS, TCS, tax reliefs under sections 89, 90, 90A, and 91, and any tax credit under Sections 115JAA or 115JD. In simpler words, it is the net tax amount payable by the taxpayer after adjusting all credits and deductions. The interest under Section 234B is levied based on this assessed tax if the taxpayer fails to pay at least 90% of this amount as advance tax.

Interest on Delayed Payment of Advance Tax

Section 234B of the Income Tax Act mandates that interest will be charged on the taxpayer if there is a failure to pay advance tax or if the advance tax paid is less than 90% of the assessed tax. The interest under this section is calculated at the rate of 1% per month or part of the month, from the beginning of the assessment year (i.e., April 1 of the following financial year) to the date of actual payment of tax or the due date of filing the income tax return, whichever is earlier.

Conditions Under Which Interest Under Section 234B is Levied

There are mainly two scenarios in which interest under Section 234B becomes applicable:

The taxpayer has not paid any advance tax during the financial year, and their assessed tax liability is more than Rs 10,000.
The taxpayer has paid advance tax, but the amount is less than 90% of the total assessed tax liability.

In both cases, the taxpayer is liable to pay interest on the shortfall or unpaid tax amount.

Calculation of Interest Under Section 234B

The interest is computed at a simple interest rate of 1% per month or part thereof on the unpaid portion of the assessed tax. The interest is calculated from April 1 of the assessment year to the date when the return of income is filed or the tax is paid, whichever is earlier. The amount on which interest is calculated is rounded off, and any fraction of a hundred rupees is ignored. Similarly, part of a month is considered a full month for the purpose of interest calculation.

Examples of Interest Calculation

Let us understand this with the help of examples:

Example 1: Kritika is liable to pay an assessed tax of Rs 50,000. She did not pay any advance tax during the financial year and paid the entire amount on June 15. Interest under Section 234B will be calculated from April to June, i.e., three months. Interest = Rs 50,000 * 1% * 3 = Rs 1,500.

Example 2: Mita’s total tax liability is Rs 1,00,000. Out of this, Rs 60,000 was deducted as TDS. She paid Rs 20,000 in March and the balance in July. Her assessed tax = Rs 1,00,000 - Rs 60,000 = Rs 40,000. She was required to pay 90% of Rs 40,000 = Rs 36,000 by March. Since she paid only Rs 20,000, the shortfall is Rs 16,000. She paid the remaining in July, so interest is payable for four months (April to July). Interest = Rs 20,000 * 1% * 4 = Rs 800.

Example 3: Shekhar has a total tax liability of Rs 70,000. He paid Rs 30,000 in March as advance tax and the remaining at the time of return filing in June. He should have paid 90% of Rs 70,000 = Rs 63,000, but he paid only Rs 30,000. Therefore, he is liable to pay interest on the balance Rs 40,000 for three months. Interest = Rs 40,000 * 1% * 3 = Rs 1,200.

Updated Return and Impact on Interest Under Section 234B

If a taxpayer files an updated return of income under Section 139(8A), any additional tax liability computed will also attract interest under Section 234B. However, the advance tax paid earlier will be considered only once for the calculation of interest. This means if you pay the balance tax while filing an updated return, you must also calculate the additional interest liability accordingly.

Assessment Year 2025-26 – Special Case

For the Financial Year 2024-25 (Assessment Year 2025-26), the due date for filing ITR for non-audit cases has been extended to September 15, 2025. Hence, in this case, interest under Section 234B will be calculated from April 1, 2025, to September 15, 2025. This change applies only for this particular assessment year.

How to Avoid Interest Under Section 234B of the Income Tax Act?

To avoid being charged interest under Section 234B, taxpayers must ensure that they make a correct estimate of their total tax liability and pay at least 90% of the assessed tax through advance tax. Taxpayers can estimate their income based on previous earnings or projected profits and calculate their tax accordingly.

It is highly advisable to consult a Compliance Calendar LLP Expert to accurately compute the tax liability and plan advance tax installments. By paying advance tax on time, taxpayers not only avoid interest under Section 234B but also ensure smooth and penalty-free ITR filing. Using tools like an advance tax calculator can be helpful in assessing the correct advance tax liability. Timely compliance also helps avoid further penalties under other related sections such as 234A (delay in filing return) and 234C (default in installment-wise advance tax).

Conclusion

Section 234B of the Income Tax Act is an important provision that enforces timely compliance with advance tax rules. Taxpayers must remain vigilant about their tax obligations, especially if their income is not subject to regular TDS, such as rental income, capital gains, or business income. Failing to pay advance tax not only leads to interest liabilities but also invites scrutiny from the Income Tax Department.

Being proactive in tax planning and taking professional assistance from Compliance Calendar LLP can help avoid interest on delayed payment of advance tax. Filing the return within the due date and ensuring 90% of the assessed tax is paid on time will help you stay compliant and avoid unnecessary financial burden due to interest and penalties. You can connect through mail at info@ccoffice.in or Call/Whatsapp at +91 9988424211.

FAQs

Q1. What is Section 234B of the Income Tax Act?

Ans. Section 234B deals with interest charged on taxpayers who either fail to pay advance tax or pay less than 90% of their total tax liability as advance tax. The section mandates an interest of 1% per month or part thereof on the unpaid tax amount, calculated from April 1 of the assessment year till the date of payment or return filing, whichever is earlier.

Q2. When is interest under Section 234B applicable?

Ans. Interest under Section 234B becomes applicable in two situations: (i) The taxpayer has not paid any advance tax despite having a tax liability of Rs. 10,000 or more after TDS. (ii) The taxpayer has paid advance tax but it is less than 90% of the total assessed tax liability.

Q3. What is the rate of interest charged under Section 234B?

Ans. The interest rate is 1% per month or part of a month. This is a simple interest rate applied to the shortfall amount from the start of the assessment year (April 1) until the date of actual tax payment or filing of the return.

Q4. How is the period of interest calculated under Section 234B?

Ans. Interest is calculated from 1st April of the assessment year till the date of filing of the income tax return or the date of payment of the tax due, whichever is earlier. Even if the delay is just a few days in a month, the entire month is counted.

Q5. What is considered as 'assessed tax' for the purpose of Section 234B?

Ans. Assessed tax refers to the total tax liability determined on the basis of returned income, after deducting TDS/TCS, tax relief under Sections 89, 90, 90A, 91, and tax credits under Sections 115JAA/115JD. The shortfall in payment of advance tax is calculated against this assessed tax.

Q6. Is interest under Section 234B applicable to senior citizens?

Ans. Senior citizens (aged 60 years or more) who do not have income from business or profession are exempted from paying advance tax and hence are not liable to pay interest under Section 234B, even if their tax liability exceeds Rs. 10,000.

Q7. Can interest under Section 234B be waived or reduced?

Ans. No, interest under Section 234B is a mandatory levy and cannot be waived or reduced by the Assessing Officer. It is automatic and applies as per the provisions of the Income Tax Act. However, in rare cases involving natural calamities or CBDT directions, relief may be considered.

Q8. How does the filing of an updated return impact interest under Section 234B?

Ans. If an updated return is filed under Section 139(8A), any additional tax liability computed will attract interest under Section 234B. However, the advance tax already paid is considered only once while computing interest, and the shortfall amount becomes chargeable again from 1st April of the assessment year.

Q9. What happens if I pay my entire tax at the time of ITR filing instead of advance tax?

Ans. If you pay the full tax liability at the time of filing your ITR and your tax liability was more than Rs. 10,000 after adjusting TDS, you will still be liable to pay interest under Section 234B from April 1 till the date of filing the return for non-payment of advance tax.

Q10. How can I avoid interest under Section 234B?

Ans. To avoid interest under Section 234B, ensure that you:\n- Estimate your annual income accurately. Compute your tax liability early in the financial year. Pay at least 90% of your total tax liability as advance tax within the prescribed due dates.