Section 234B: Interest for Default in Payment of Advance Tax
Section 234B of the Income-tax Act, 1961 provides for interest where an assessee who is liable to pay advance tax does not pay it or pays less than 90% of the assessed tax. The corresponding provision in the Income-tax Act, 2025 is Section 424. The applicable interest rate is 1% per month or part of a month, subject to the statutory calculation rules.
What is Section 234B?
Section 234B imposes simple interest for a shortfall in overall advance-tax payment. It differs from Section 234C, which addresses delays or shortfalls in prescribed advance-tax instalments. A taxpayer may incur interest under both provisions when their separate conditions are satisfied.
When is interest payable?
Under Section 234B(1), interest ordinarily arises when the taxpayer is liable to pay advance tax under Section 208 but either pays no advance tax or pays less than 90% of assessed tax. Where the 90% threshold is met, interest under this subsection does not arise merely because the entire assessed tax was not paid as advance tax.
Key statutory terms and related provisions
- Section 208 - liability for advance tax
- Sets out when advance tax is payable, subject to applicable exceptions and thresholds.
- Section 210 - payment of advance tax
- Governs calculation and payment of advance tax under the 1961 Act.
- Assessed tax - Explanation 1 to Section 234B
- Broadly, tax determined on the relevant total income after reducing eligible tax deducted or collected at source, specified tax reliefs and credits, as provided by the applicable statutory text. It is not always the same as gross tax or the balance shown on a return.
- Section 140A - self-assessment tax
- Provides for payment of self-assessment tax and applicable interest before furnishing a return.
- Section 143(1) and regular assessment
- Relevant events for determining the period and amount of interest under Section 234B.
Interest rate, period and formula
Interest is calculated at 1% simple interest for every month or part of a month, generally starting on 1 April immediately after the relevant financial year and running to the prescribed determination or assessment date. Payments made in the meantime can reduce the principal for the subsequent period, subject to Section 234B(2).
Where advance tax paid is less than 90% of assessed tax, the interest base is the full shortfall between assessed tax and advance tax paid, not merely the amount needed to reach 90%.
Illustrative calculation
Assume assessed tax is Rs. 1,00,000 and advance tax paid is Rs. 60,000. The payment is 60% of assessed tax, below the 90% threshold. The initial interest base is Rs. 40,000. If the relevant interest period is four months and no intervening payment changes the base, interest is Rs. 40,000 × 1% × 4 = Rs. 1,600. This example excludes any other applicable interest, fee or adjustment.
Effect of self-assessment tax and later payments
Section 234B(2) provides for calculation up to the date tax is paid under Section 140A or otherwise, with subsequent interest computed on the remaining shortfall. Interest already paid towards Section 234B is taken into account as provided in the statute. The actual dates and allocation of payments matter.
Reassessment, settlement and revised orders
Section 234B also addresses certain settlement proceedings, reassessment or recomputation, and changes following rectification, appeal or revision. Depending on the applicable subsection and order, additional interest may become payable or excess interest may have to be refunded. Historical provisions relating to the Settlement Commission must be read with the legislation and transition rules applicable to the relevant proceedings.
Section 424 under the Income-tax Act, 2025
The Income Tax Department identifies Section 424 as corresponding to Section 234B. The Department's transition guidance confirms that the interest rate remains 1% per month or part of a month for failure to pay advance tax or payment below 90% of assessed tax. The correct Act depends on the relevant tax year and applicable saving or transition provisions.
Section 234A vs 234B vs 234C
| Provision under 1961 Act | Principal default |
|---|---|
| Section 234A | Delay in furnishing a return of income |
| Section 234B | Failure to pay advance tax or payment below 90% of assessed tax |
| Section 234C | Deferment or shortfall of advance-tax instalments |
Frequently asked questions
Is Section 234B interest a penalty?
No. It is statutory simple interest for the specified advance-tax default, distinct from a penalty imposed under another provision.
Is interest charged only on the amount below 90%?
No. Once advance tax is below 90% of assessed tax, the initial base is generally assessed tax minus advance tax paid.
Does self-assessment tax stop interest?
It can reduce or eliminate the remaining interest base from the relevant payment date, subject to the statutory rules and any unpaid balance.
Official legal sources
Refer to the Income Tax Department - Section 234B (2025 text of the 1961 Act), the Income-tax Act, 1961 as amended by Finance Act, 2025, the Income-tax Act, 2025 as amended by Finance Act, 2026 and the official transition FAQs.
This article provides general legal information. For an actual interest computation, verify the applicable assessment or tax year, tax credits, payment dates, return status and orders.