Section 234 B
What is Advance Tax?
It is applicable if you are liable to pay above Rs 10,000 in taxes in a financial year. Advance Tax means reimbursing your tax dues based on the dates (usually quarterly) provided by the income tax department. If you do not pay advance tax, then according to section 234B, assessed you will be liable to pay interest.
Who needs to pay Advance Tax assessed
All including paid employees, businessmen, self-employed professionals, etc. are required to pay Advance Tax where the tax payable is Rs 10,000 or above.
Advance Tax is NOT relevant when -
Effective AY 2011-12 – When a taxpayer choose for the scheme of computing business revenue under section 44AD on presumptive basis @ 8% of turnover, such taxpayer shall be exempted from payment of advance tax for such business.
Effective AY 2013-14 – A senior citizen who is resident of India and is 60 yrs or more and who does not have any income from any trade/business & profession, shall not be liable to pay advance tax.
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Late Payment Interest
These are the two situations in which interest is applicable -
You tax liability for the financial year is above Rs 10,000 and you have not paid any advance tax.
OR
You have paid less advance tax i.e. paid but it is less than 90% of 'assessed tax'
In any one of the instances, interest under section 234B shall be relevant.
Interest is calculated @ 1% on Assessed Tax less Advance Tax.
Part of a month is rounded off to a full month. The sum on which interest is computed is also rounded off in such a way that any division/fraction of a hundred is ignored.
Illustration
Ambika’s total tax liability is Rs 40,000. Ambika paid this amount on 12th June while filing her return.
Since, Ambika’s total tax liability is above Rs 10,000, she was liable to pay advance tax. Therefore, Ambika will be liable to pay interest under section 234B.
Interest calculation
Rs 40,000 x 1% x 3 (April, May, June)
= Rs 1,200
Ambika is liable to pay Rs 1200 interest as per section 234B.
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