When one misses or forgets to pay advance tax, then he/she has to pay penalty in the form of interest under Section 234B of the Income Tax Act. This section is the second section of three sections of the Income Tax Act wherein interest is imposed by the IT department. This section talks about penalties and fines that the Income Tax department may impose for defaulters. The liabilities under this section may also arise when one becomes unable to pay advance taxes on time.Read more
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Before knowing more about Section 234B in detail, let us first know about advance tax.
If one has to pay Rs.10, 000 or more as taxes in a financial year, then you may be required to pay advance taxes. The meaning of advance tax is paying the dues of tax on the dates (most of the times quarterly) given by the income tax department. If one has not paid advance tax on time, then one may become liable to pay the interest as per Section 234B.
All assesses even including the self-employed professionals, salaried employees, businessmen, etc. are needed to pay the Advance Tax. Here the payable tax even after reducing the TDS should be Rs.10, 000 or more.
All the businessmen, self-employed professionals, or salaried employees are needed to pay the Advance Tax where the payable tax is greater than or equal to Rs.10, 000. There are two main cases in which one has to pay the interest under Section 234B:
The interest that is payable in Section 234B is applied only when:
The interest under Section 234B is applicable in any of the above-mentioned cases. The interest is calculated at the rate of 1% on the assessed tax less the advance tax. The part of a month is rounded off into full month. The money on which the interest is calculated is as well rounded off in a way that some fraction of 100 can be ignored.
Let us take examples to understand Section 234B of the Income Tax Act:
Calculation of Interest in This Case is:
Rs.55, 000 (assessed tax) – Rs.47, 000 (advance tax) = Rs.8, 000
8, 000 X1% X 2 (April and May) = Rs. 160
The interest that Mr. B has to pay with his tax liability as per Section 234B is Rs.160.
The following categories of people or taxpayers do not have to pay any Advance Tax:
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