Interest for Default in Payment of Advance Tax
Introduction:
Interest under Section 234B is levied if the assessee fails to pay advance tax or if the amount paid is less than 90% of the assessed tax. If no advance tax liability exists, this section does not apply.
Key Provisions:
o Levy of Interest: Applicable when advance tax paid is less than 90% of the assessed tax.
o Assessed Tax: Tax on total income, reduced by TDS/TCS, MAT/AMT credit, Section 89 relief, or foreign tax credit. Only tax actually deducted/collected is considered.
o Interest Rate: Simple interest at 1% per month or part thereof, calculated on the shortfall.
o Round-off: The amount of tax, penalty or other sum in respect of which such interest is to be calculated shall be rounded off to the nearest multiple of Rs. 100.The interest amount so computed shall also be rounded off to the nearest multiple of Rs. 10.
Computation Basis:
o If Advance Tax is Not Paid: Interest is charged on the entire assessed tax.
o If Advance Tax Paid is Less Than 90%: Interest is calculated on the shortfall, reduced by any self-assessment tax paid.
Computation Period:
o No Self-Assessment Tax Paid: From April 1 of the assessment year to the date of assessment.
o Self-Assessment Tax Paid: Two periods—(i) April 1 to the date of self-assessment tax payment; (ii) from the date of payment of self-assessment tax to the date of assessment (if additional tax is due).
o Reassessment: Interest applies from April 1 of the assessment year to the date of reassessment.
o Recalculation of interest: Where the amount of tax payable is increased or reduced as a result of rectification or appeal or reference to Commissioner or order of the Settlement Commission, the interest shall be increased or reduced accordingly.
Special Situations:
o Updated Return: Interest is computed based on assessed tax declared in the updated return.
o Settlement Commission (SetCom): Interest is charged on additional tax disclosed or determined by SetCom.
o MAT/AMT: Companies and non-corporate assessees under MAT/AMT are also liable for interest if advance tax defaults occur.
Waiver: Interest cannot be waived by assessing officers but may be reduced/waived by CBDT in specified circumstances.