234B of Income Tax Act (All You Need to Know)

Section 234B of Income Tax Act talks about the fines an assessee is imposed upon for not paying their advance taxes. The general penalty for not paying advance tax is 1 % of the total tax liability pending to be paid by the assessee. But, it was decreased for the financial year 2020 to 0.75%.

We have discussed in detail the concept of advance tax of Income Tax in the article mentioned below.

Let’s head straight to understand more about Section 234 B of the Finance Act.

What Is 234B in Income Tax?

Under section 234 B,  the assessee is liable to pay a penalty under these conditions:

1. If the total estimated advance tax amount is more than INR 10,000 or more in a financial year.

2. If the assessee has paid the advance income tax partially or is less than 90% of the total estimated advance income tax in a financial year.

Note: The advance tax is computed on the total gross income of an assessee in the financial year.

How to Pay Advance Tax?

There are the following Modes of Payment of advance tax as proposed In provisions related to advance tax:

1. A corporate taxpayer or a company can choose an electronic payment mode, which is an internet banking facility of authorized banks to pay their advance tax.

2.  Taxpayers required to get their accounts audited can pay their advance tax by electronic payment mode of an authorized Bank.

3.  All other taxpayers can pay their advance tax by electronic mode or by physical mode which is by depositing the challan at the receiving Bank. 

How Do You Calculate 234B and 234C Interest?

The advance tax is calculated on the gross income of a person in a financial year. The income from all types of sources is summed up to get the gross income of a person in a financial year. After that, the advance tax is calculated according to the Income Tax slab as directed in the Income Tax Act 1961. 

Also, the health and education cess is added at 4% on the amount of tax calculated.

Now, the payment of the advance tax can be done by the assessee in the form of small slots or as a one-time payment for a financial year. The assessee can opt-out to pay the income tax in installments through an exemption and can pay the whole tax before the end of the financial year.

If the assessee wants to pay the advance taxes in installments, then he can do so in four payments throughout the year, on the following dates:

1. The first installment is equal to 15% of the tax amount, to be paid by 15 June.
2. The second installment is equal to 45% of the tax amount, to be paid by 15 Sept.
3. The third installment is equal to 75% of the tax amount, to be paid by 15 Dec.
4. The fourth installment is equal to 100% of the tax amount, to be paid by 15 March. 

Penalty under section 234 C can be imposed on the taxpayer if there are irregularities during the payment of the above installments. 

1. If the advance tax paid on 15th June is less than 12% of the tax payable amount.
2. If the advance tax paid on 15th Sept is less than 36% of the tax payable amount.
3. If the advance tax paid on 15th Dec is less than 75% of the tax payable amount.
4. If the advance tax paid on 15th March is less than 100% of the tax payable amount.

Here Is How the Penalty for Section 234 C Is Calculated.

1. Suppose, for the first installment the amount of tax payable at 12% is 20,000. However, only 10,000 was paid. Then, the pending amount of tax payable is 20,000 – 10,000 = 10,000. The penalties will be charged as simple interest at 1% on INR 10,000 only. Which will be (10,000 * 1 * 3)/100 = 300.

2. Similarly, the penalties for all the remaining installments of the advance will be calculated. The penalties of all the installments will be added, which will be the Total penalty payable under section 234 C of the Income Tax Act. 

3. Now, if the penalty of the remaining installments is 600, 500, and 1200. Then the total penalty will be 300+600+500+1200 = 2600.  

4. It means that the total penalty under section 234 C for the example above is INR 2,600.

When 234B & 234C Is Applicable?

Section 234 B is applicable when the advance income tax is not being paid fully or has been paid partially. In such cases, simple interest at 1 % is charged for the month or part of the month and on the pending amount.

Section 234 C is applicable when there is a discrepancy in any of the installments of the advance tax payments. Which is partial or no payment of any of the installments. In such a case, simple interest at 1% is charged at the amount pending to be paid in that particular installment. As explained above, in this article.

Is 234B Applicable for Salaried Employees?

Section 234c of the financer is applicable to anyone who has an earning, irrespective of them being salaried employees, freelancers, business owners, Cooperative firms, NGOs, etc. Any entity/person, whose taxable income in a financial year exceeds INR 10000, is liable to be charged a simple interest of one percent if failed to pay the advance tax in that year.

Is It Compulsory to Pay Advance Tax?

Yes, it’s mandatory to pay advance tax if your tax liability is more than INR 10,000 for a financial year.

Is 234B Applicable for Senior Citizens?

A resident senior citizen aged 60 years and above is not liable to pay an advance tax, if they don’t have any other source of income under the heads and profit section. Meaning, there is no source of any additional income other than their pension. They are liable to pay TDS, which is deducted before pension is credited. 

Here are some new updates disclosed in a circular by the Income tax department in November 2022, under Amendments.

The amendments made in section 119 of the Act affects section 234B and 234c as well. The amendment states that “Section 119 of the Act empowers the Board to issue orders, instructions, and directions to other income-tax authorities for the proper administration of the Act. Clause (a) of sub-section (2) of the said section gives powers to the Board to provide relaxation of provisions of certain sections of the Act such as 115P, 115S, 115WD, 139, 211, 234A, 234B, 234C, 234E, etc. by way of general or special orders, in respect of any class of incomes or class of cases, for the purpose of proper administration of the work of assessment or collection of revenue or the initiation of proceedings for the imposition of penalties and such other issues, in the public interest.”

Conclusion

Section 234 B of the Income tax act is important as it makes sure that all taxpayers pay their taxes on time. The taxpayers are liable to pay advance tax if their tax liability exceeds more than INR 10,000, within a financial year. The penalty for the defaulters of advance income tax payments is a 1% simple interest on the amount that fell short of the recommended tax amount in a part or month in the financial year. The penalty under Section 234 B and 234 C should be paid within the financial year in which they were imposed.

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