Hello folks, I noticed my ITR shows interest for default in payment of advance tax (Section 234B). But I already paid my advance tax on time…so why is interest being charged?
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If your ITR shows interest under Section 234B, despite paying advance tax, you might be wondering why it’s there?
Let’s break it down.
What is Section 234B?
It’s the interest charged when you don’t pay enough advance tax during the year. The rule says:
You’re required to pay at least 90% of your total tax liability by 31st March of the financial year
If the advance tax paid is less than this threshold, interest under Section 234B becomes applicable.
So, when does it apply?
Section 234B applies in two cases:
- You didn’t pay advance tax at all (and your total tax exceeds ₹10,000)
- You paid advance tax, but it was less than 90% of your final tax liability
This usually happens when income is underestimated, or when there is additional income during the year such as capital gains, interest, or trading profits — which wasn’t accounted while calculating advance taxes.
How is the interest under Section 234B calculated?
If there’s a shortfall, here’s how interest is charged:
- 1% per month on the unpaid amount
- From 1st April of the assessment year, until the date the remaining tax is paid (usually ITR filing date)
Let’s say your final tax liability is ₹1,00,000. You’ve already paid ₹75,000 through advance tax or TDS.
Since ₹75,000 is less than 90% of ₹1,00,000, the shortfall of ₹25,000 will attract interest.
If you pay this on 20th July, the interest will be charged for 4 months (April to July).
₹25,000 × 1% × 4 months = ₹1,000
This amount will appear as interest under Section 234B in your return.
How to avoid 234B next time?
Here’s what to do:
- Estimate your income and taxes before the financial year ends
- Cross-check it with your AIS and Form 26AS
- Pay advance tax before 31st March on the income tax portal
Hope this helps.