Section 234B Interest: 1% for Advance Tax Shortfall Below 90% of Assessed Tax

Section 234B of the Income Tax Act 1961 charges interest at 1% per month where the advance tax paid by 31 March is less than 90% of assessed tax. Interest runs from 1 April of the assessment year on the shortfall — assessed tax minus advance tax actually paid. For a ₹12 lakh tax bill with ₹2 lakh TDS and ₹8 lakh advance tax, the statutory shortfall is ₹2 lakh, and six months of delay costs ₹12,000.

What the law actually requires

Section 234B, Income Tax Act 1961 — interest for default in payment of advance tax. It applies when an assessee liable to pay advance tax under Chapter XVII-C fails to pay it, or pays less than 90% of the assessed tax by 31 March. The interest is mandatory and self-computing: there is no officer to persuade and no reasonable-cause waiver.

The base — read the definition carefully

Section 234B(3) defines assessed tax as the tax on total income as determined, reduced by the amount of tax deducted or collected at source (TDS/TCS). The interest is then computed under Section 234B(2) on the amount by which the advance tax paid falls short of the assessed tax. TDS is not added back at the shortfall stage — it is already inside the assessed-tax figure.

The common calculator error is to test 90% against the gross tax before TDS (90% of ₹12 lakh = ₹10.8 lakh) and then compute interest on that gap. The statutory base for the interest remains the assessed tax reduced by the advance tax paid.

⚠️ — the worked base above follows s.234B(2) and s.234B(3): interest runs on assessed tax (net of TDS) minus advance tax paid. Confirm the computation basis with your CA before publishing, as the 90% threshold and the interest base are distinct calculations and are frequently conflated.

The period

Interest runs from 1 April of the assessment year until the date of regular assessment or, if the assessee pays self-assessment tax under Section 140A before filing, until the date of that payment. The rate is 1% per month, simple interest, with any part of a month counted as a full month.

Worked example: Priya settles her shortfall late

Priya runs a design studio with a ₹12 lakh tax bill for FY 2025-26 (AY 2026-27). Her CA deducted ₹2 lakh as TDS on her client receipts, and she paid ₹8 lakh as advance tax. She did not pay the balance during the year and settles everything on 20 September 2026, when she files her ITR.

The ₹12,000 is not deductible (Section 40(a)(ii) disallows interest on income tax). It sits on top of any 234A interest for filing late and any 234C interest for missing instalment dates — three interest sections can stack on one tax bill.

What a director should actually watch

• Pay at least 90% of the assessed tax by 31 March. The test is against assessed tax net of TDS — pull Form 26AS before the year-end instalment so you know your TDS credit.
• File after paying the balance, not before. The interest clock for 234B stops at self-assessment payment, not at the filing date. Pay the shortfall first, then file.
• Distinguish the 90% trigger from the interest base. The trigger is a threshold test; the interest runs on the full shortfall. Do not let a calculator substitute one for the other.
• 234B, 234A and 234C stack. Paying nothing during the year and filing late attracts all three. The total can be a meaningful percentage of the tax itself.
• A company gets no threshold relief. Unlike individuals, a private limited company is in scope for advance tax with no minimum-liability exemption, so the 90% test applies to every rupee of its liability.

The company-specific angle

A private limited company has no threshold relief from advance tax. Section 208 brings every assessee with an estimated liability of ₹10,000 or more into the advance-tax net, and a company gets no senior-citizen or minimum-liability exemption — a company with a ₹10,001 liability is in scope. The consequence is that the 90% test under 234B applies to every rupee of a company's tax bill.

Two additional points matter for companies. First, Minimum Alternate Tax under Section 115JB counts as tax for the advance-tax and interest computation — a company with book profits but tax losses still owes MAT and can face 234B on it. Second, a company electing the concessional regime under Section 115BAA pays the same advance-tax schedule and faces the same 234B mechanics as one in the old regime; the choice of regime does not change the instalment or interest rules. The working-capital discipline — paying at least 90% of assessed tax by 31 March — is therefore a board-level cash-planning item, not a tax-team detail.

FAQ

What triggers 234B interest?
Paying advance tax that is less than 90% of the assessed tax by 31 March. Assessed tax is the tax on total income reduced by TDS/TCS.

On what amount is 234B interest computed?
On the shortfall — assessed tax (net of TDS) minus advance tax actually paid. Not on the 90% gap and not on the gross tax.

From when does the interest run?
From 1 April of the assessment year to the date of regular assessment or, if self-assessment tax is paid earlier, to the date of that payment.

Is 234B interest deductible?
No. It is disallowed under Section 40(a)(ii) as part of income tax paid.

Does 234B apply if I paid 90% of the gross tax but not 90% of assessed tax?
The test is against assessed tax. If TDS changes the figure, recalculate against the net-of-TDS assessed tax before assuming you are safe.

Can 234B interest be waived?
Practically no. Waiver is theoretically possible under Section 119(2)(a) in exceptional circumstances, but not for ordinary cash-flow shortfalls. Do not plan around it.

Use the advance tax calculator to project your instalments and avoid the 90% trap: /tools/advance-tax-calculator. For a tax planning and compliance review, visit pvtltd.co.

Sources

• Section 234B(1), 234B(2), 234B(3), Income Tax Act 1961
• Section 208, Section 211, Income Tax Act 1961 (advance tax liability and instalments)
• Section 140A ITA 1961 (self-assessment tax)
• Section 40(a)(ii) ITA 1961 (disallowance of interest on income tax)

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