234B of Income Tax Act - Delay in Advance Tax Payment

Are you facing penalties for delayed advance tax payments? Section 234B of Income Tax Act might be the reason. This provision affects many taxpayers who miss deadlines or underpay their advance tax obligations.

When tax planning goes wrong, you might end up paying more than expected. Understanding Section 234B can help you avoid these extra costs. The Income Tax Department charges interest when you fail to meet advance tax requirements.

This article will explain everything about Section 234B, how it works, and ways to avoid penalties. We'll also share how proper financial planning, including home loan tax benefits from Bajaj Finance, can help manage your tax liability better. Check your eligibility for a Bajaj Housing Finance Home Loan. You may already be eligible, find out by entering your mobile number and OTP.

What is Section 234B of the Income Tax Act?

Section 234B of Income Tax Act imposes interest charges when taxpayers fail to pay advance tax or pay less than 90% of their assessed tax liability. The tax department levies this interest at 1% per month from April of the assessment year until you pay your taxes fully.

This section aims to ensure timely tax payments throughout the financial year. Many taxpayers overlook Section 234B of Income Tax Act, resulting in unexpected penalties. The government introduced this provision to maintain steady revenue flow rather than waiting for year-end payments.

What is assessed tax?

Assessed tax refers to your total income tax liability after accounting for all income sources and applicable deductions. It represents the final tax amount you must pay after the Income Tax Department processes your return.

This amount includes tax on your salary, business income, capital gains, and other sources. Your assessed tax calculation considers all exemptions and deductions you claim under various sections of the Income Tax Act.

If your assessed tax exceeds Rs. 10,000, you must pay advance tax to avoid Section 234B of Income Tax Act penalties.

What is an advance tax?

Advance tax is a "pay-as-you-earn" system where you pay taxes in instalments during the financial year instead of a lump sum payment at year-end. The government requires this to ensure regular tax revenue throughout the year.

You must pay advance tax in four instalments: 15% by June 15, 45% by September 15, 75% by December 15, and 100% by March 15. Failing to meet these deadlines triggers Section 234B of Income Tax Act penalties if you pay less than 90% of your assessed tax.

Planning for these payments is crucial, similar to planning EMIs for financial commitments like a Bajaj Housing Finance Home Loan. Check your loan offers now. You may already be eligible, find out by entering your mobile number and OTP.

Who should pay advance tax?

Anyone with a tax liability exceeding Rs. 10,000 after TDS deductions must pay advance tax. This requirement applies to various categories of taxpayers regardless of their primary income source.

Understanding your advance tax obligations helps avoid penalties under Section 234B of Income Tax Act. Let's look at different categories of taxpayers who need to pay advance tax.

Individuals (Salaried and freelancers/professionals)

Salaried individuals usually don't need to pay advance tax because their employers deduct TDS. However, if you have additional income sources like rental property or investments where TDS isn't deducted, you must pay advance tax on that income.

For example, if your salary has proper TDS but you earn Rs. 3 lakh from investments with no TDS, you must pay advance tax on the investment income. Section 234B of Income Tax Act penalties apply if you fail to pay this advance tax.

Businesses/corporations

All businesses and corporations must pay advance tax if their estimated tax liability exceeds Rs. 10,000. This requirement applies regardless of business size or structure.

Companies must calculate their projected income and tax liability at the beginning of the financial year. Based on these estimates, they must pay advance tax in quarterly instalments as per the schedule. Failure to do so triggers Section 234B of Income Tax Act interest penalties.

Self-employed/freelancers/professionals

Self-employed individuals, freelancers, and professionals like doctors, lawyers, and consultants must pay advance tax if their tax liability exceeds Rs. 10,000. Since they don't have employers deducting TDS, they're wholly responsible for their tax payments.

These taxpayers should track their income throughout the year and estimate their tax liability. Section 234B of Income Tax Act applies strictly to this category as they often miss advance tax payments due to irregular income patterns.

Capital gains/other income sources

Individuals earning capital gains from property or share sales must pay advance tax on these gains. Other income sources like lottery winnings, gifts, or foreign income also require advance tax payments.

For unpredictable income like capital gains, you should calculate the tax liability as soon as the transaction occurs. Not paying advance tax on these incomes can lead to Section 234B of Income Tax Act penalties.

Interest under section 234B of the Income Tax Act

Section 234B of Income Tax Act charges interest at 1% per month or part of a month when you fail to pay advance tax or pay less than 90% of your assessed tax. This interest accumulates from the first day of the assessment year until you pay the tax fully.

For example, if you pay your tax on June 10, 2024, for the financial year 2023-24, you'll pay interest for three months (April, May, and June). Even one day into a month counts as a full month for interest calculation under Section 234B of Income Tax Act.

Example

Let's say your total tax liability for the financial year 2023-24 is Rs. 1,00,000. You paid only Rs. 80,000 as advance tax by March 31, 2024. Since this is less than 90% of your assessed tax, Section 234B applies.

The shortfall is Rs. 20,000. If you pay this remaining amount on August 15, 2024, you'll pay interest for 5 months (April to August). The interest will be Rs. 20,000 × 1% × 5 = Rs. 1,000. This extra expense could have been avoided with proper tax planning.

How to avoid interest under Section 234B of Income Tax Act?

To avoid Section 234B of Income Tax Act penalties, ensure you pay at least 90% of your assessed tax as advance tax before the financial year ends. Following the prescribed instalment schedule helps manage this requirement effectively.

Due date	Minimum advance tax
June 15	15% of total tax
September 15	45% of total tax
December 15	75% of total tax
March 15	100% of total tax

Maintain detailed income records throughout the year to estimate your tax liability accurately. Consider consulting a tax professional if you have multiple income sources or complex tax situations.

Just as you plan your home loan EMIs with a Bajaj Housing Finance Home Loan calculator, plan your advance tax payments too. Check your eligibility for a home loan now. You may already be eligible, find out by entering your mobile number and OTP.

Who should not pay advance tax?

Some taxpayers are exempt from advance tax requirements. Understanding these exemptions helps avoid unnecessary payments and compliance burdens.

Category	Advance tax requirement
Tax liability under Rs. 10,000	Not required
Senior citizens without business income	Not required
Salaried with proper TDS and no other income	Not required
Agricultural income earners	Not required

Senior citizens (60+ years) without professional or business income don't need to pay advance tax. The Section 234B of Income Tax Act penalty doesn't apply to them even if they pay tax at the year-end.

What is the limit of 234B?

Section 234B of Income Tax Act applies when your advance tax payment is less than 90% of your assessed tax. This 90% threshold is critical for determining whether you face penalties.

For example, if your assessed tax is Rs. 1,00,000, you must pay at least Rs. 90,000 as advance tax to avoid Section 234B penalties. The interest applies to the shortfall amount, not your entire tax liability.

There's no upper limit to the penalty that can accumulate under Section 234B of Income Tax Act. The longer you delay tax payment, the more interest you'll pay.

Who should pay interest penalty as per Section 234B?

Any taxpayer who fails to pay at least 90% of their assessed tax as advance tax must pay interest under Section 234B of Income Tax Act. This requirement applies regardless of income source or taxpayer category.

The penalty applies even if you file your tax return on time but didn't pay sufficient advance tax during the year. Many taxpayers mistakenly believe that paying tax before the return filing deadline avoids penalties.

Section 234B of Income Tax Act interest continues until you pay the tax fully, potentially adding significant costs to your original tax liability.

Example on how to compute interest on advance tax default

Let's examine three common scenarios to understand how Section 234B of Income Tax Act interest is calculated in different situations.

Case 1: When the assessee did not pay any advance tax during the year

Suppose your tax liability for FY 2023-24 is Rs. 50,000, but you didn't pay any advance tax. You file your return and pay the tax on July 31, 2024.

Under Section 234B of Income Tax Act, you'll pay interest for 4 months (April to July 2024): Rs. 50,000 × 1% × 4 = Rs. 2,000

This additional Rs. 2,000 could have been avoided by paying advance tax on time.

Case 2: When the assessee paid advance tax, but it was less than 90%

Let's say your assessed tax is Rs. 1,20,000, and you paid Rs. 80,000 as advance tax. Since this is only 66.67% (less than 90%), Section 234B of Income Tax Act applies.

If you pay the remaining Rs. 40,000 on June 30, 2024, you'll pay interest for 3 months: Rs. 40,000 × 1% × 3 = Rs. 1,200

This case shows that partial advance tax payment still leads to penalties if it's below the 90% threshold.

Case 3: Where the assessee has tax credit but paid advance tax less than 90%

Suppose your total tax liability is Rs. 2,00,000. You have TDS credits of Rs. 80,000 and paid advance tax of Rs. 90,000. Your total payment is Rs. 1,70,000, which is 85% of your liability.

Since this is less than 90%, Section 234B of Income Tax Act applies to the shortfall of Rs. 30,000. If you pay this by May 15, 2024, the interest would be: Rs. 30,000 × 1% × 2 = Rs. 600

This example shows that even with tax credits, you must ensure your total pre-payments reach the 90% threshold.

Key takeaways

Understanding Section 234B of Income Tax Act helps you avoid unnecessary penalties. Here are the key points to remember:

• Pay at least 90% of your assessed tax as advance tax before the financial year ends
• Interest is charged at 1% per month on the shortfall amount
• The penalty continues until you pay the tax fully
• Even one day into a month counts as a full month for interest calculation
• Proper tax planning helps avoid these penalties

Just as financial planning is crucial for tax management, planning your home loan can help optimise your finances. Bajaj Finance offers home loans with competitive interest rates. Check your loan offers today. You may already be eligible, find out by entering your mobile number and OTP.

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A Bajaj Finance representative will contact you to guide you through the next steps. The approval process takes just 48 hours* after document submission.

Eligibility criteria to get home loan from Bajaj Finserv

Before applying, check if you meet these eligibility criteria for a Bajaj Housing Finance Home Loan:

• Indian citizenship and residence in India
• Age between 23-67 years for salaried applicants and 23-70 years for self-employed professionals
• CIBIL score of 725 or higher
• Steady income source (salaried, professional, or self-employed)
• Documents required for home loan include KYC documents, income proof, and bank statements
• Home loan interest rates start from 7.99%*  p.a. for salaried individuals and 8.30%* p.a. for self-employed

Plan Your Finances Wisely

Managing your tax obligations and home financing requires careful planning. Bajaj Housing Finance Home Loans offer not just competitive interest rates but also significant tax benefits that can help reduce your overall tax liability.

With home loan interest rates starting from just 7.99%*  p.a. and loan amounts up to Rs. 15 crore*, Bajaj Finance provides flexible solutions for all your housing needs. The EMIs start from just Rs. 722/lakh*, making it affordable for various income groups.

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Take control of your financial planning today by exploring Bajaj Housing Finance Home Loan options. Check your eligibility now and take the first step toward owning your dream home while optimising your tax benefits. You may already be eligible, find out by entering your mobile number and OTP.

*Terms and conditions apply

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