Understanding Section 234B: Penalties for delayed tax payment
Those with an income tax liability of more than Rs 10,000 in a financial year are liable to pay advance tax to the Income Tax Department under existing rules. Failure to make payments within the specified timeline attracts a penalty under Section 234B of the Income Tax Act, 1961. Recall here that March 15, 2023, is the last day to pay the final instalment of advance tax.
See also: Presumptive tax scheme under Section 44AD of Income Tax Act
What is Section 234B of Income Tax Act?
Irrespective of the profession ─ this means the rule covers salaried individuals, businesses, as well as professionals ─ taxpayers in India must submit the advance tax to the tax authorities at specified intervals if their total tax liability in a year is over Rs 10,000. Section 234B talks about the penalty taxpayers will be liable to pay in case of payment delay.
What is advance tax? Who needs to pay it?
Advance tax is a tax an individual can pay to the government, estimating his annual income for the entire financial year at specific intervals. Under Section 208 of Income Tax Act, 1961, a person whose estimated tax liability for the year is more than, or equal to Rs 10,000, is liable to pay advance tax.
Advance tax payment due dates
A certain percentage of your total tax liability must be paid by the timeline mentioned below:
15%: Before June 15 of the financial year
45%: On or before September 15
75%: On or before December 15
100%: On or before March 15
Fine for advance tax payment default
Under this section, 1% of the assessed tax minus the advance tax has to be paid as a penalty in case of payment delay or default. This penalty must be done if you paid less than 90% of the assessed tax. This penalty must also be paid if your advance tax liability for the fiscal is more than Rs 10,000 even after TDS but you did not pay the remaining amount.
At the time of interest calculation, both month and figure will be rounded off. This means, a 15-day default would be rounded off to one-month default. Similarly, if the interest works out to be Rs 999, you will be liable to pay Rs 1,000.
Penalty calculations under Section 234B
Example 1: Suppose Supriya Dhankar, an independent contractor working from home, has a total advance tax liability of Rs 50,000 for the financial year. As no TDS is deducted in her case, Supriya pays this tax at the time of filing her ITR on June 10. Considering Supriya is liable to pay advance tax, she will be charged an interest penalty under Section 234B.
Supriya’s penalty:
Rs 50,000x1x3 = Rs 1,500
Example 2: Suppose Supriya has a total advance tax liability of Rs 100,000 for the financial year. She pays Rs 75,000 as advance tax on March 15. She pays the remaining Rs 25,000 at the time of filing her ITR. As Supriya paid less than 90% of her advance tax liability (Rs 90,000), she is liable to pay a penalty under Section 234B.
Supriya’s penalty:
Tax Rs 100,000 – advance Rs 75,000 = Remaining Rs 25,000
Rs 25,000x1x2 = Rs 500
Do salaried people need to pay advance tax?
As the responsibility to deduct tax at source lies on the employer, salaried individuals whose employer deducts TDS under ‘Income from Salary’ don’t have to pay advance tax. However, in case they earn anything apart from salary, which is not reported to the employer, they have to pay the advance tax. Thus, those moonlighting are liable to pay advance tax on their income. Salaried taxpayers earning rent, interest and dividend must declare it to their employers so that TDS can be deducted.
Are NRIs liable to pay advance tax?
Even though the law does not specifically mention the term ‘non-resident Indians’, they too are liable to pay advance tax if their tax liability in India exceeds Rs 10,000 in a financial year.
Are senior citizens liable to pay advance tax?
Senior citizens earning only pensions and interest are exempted from paying the advance tax. They will, however, have to pay advance tax in case they are earning money under ‘profit and gains from business or profession.
Avoiding Section 234B Penalties: Tips for timely tax filing
Pay your advance tax before each deadline to steer clear of any problems. Making the payment on the last date may not be a good idea because your attempts to pay might fail due to heavy traffic on the site that ultimately causes technical glitches.
FAQs
What is advance tax?
The tax an individual can pay to the government, estimating his annual income for the entire financial year, is called advance tax.
Who is liable to pay advance tax?
Anyone with an income tax liability exceeding Rs 10,000 is liable to pay advance tax in India.
