CHAPTER XVII - COLLECTION AND RECOVERY OF TAX | F.—INTEREST CHARGEABLE IN CERTAIN CASES
CHAPTER XVII - COLLECTION AND RECOVERY OF TAX | F.—INTEREST CHARGEABLE IN CERTAIN CASES
Section 234B — Interest for Defaults in Payment of Advance Tax
Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise
Status: Live; inserted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1989.
Finance Act, 2026: Not amended by the Finance Act, 2026 (the new section 234-I is a Part G fee).
Mechanism: Simple interest @ 1% p.m. (or part) on assessed tax (or the shortfall) from 1 April of the AY to determination under section 143(1)/regular assessment, where advance tax is unpaid or below 90% of assessed tax.
Litigation profile: Most heavily litigated Part F section — mandatory levy, MAT advance tax, non-resident/TDS line, ITNS-150 procedure.
A. COMMENTARY
1. Place in the scheme
Section 234B charges interest for default in the payment of advance tax. It is the heaviest-litigated of the Part F provisions because advance tax under sections 207-210 is computed on an estimate, and the gap between estimate and final liability is where disputes arise. The section was inserted by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1 April 1989, replacing the old section 215/217 interest. It works in tandem with section 234C: 234C addresses shortfall in individual instalments during the year, while 234B addresses the overall shortfall measured against "assessed tax" from 1 April of the assessment year until determination/assessment.
2. The charge — trigger, base and period
Sub-section (1) bites in two situations: where an assessee liable to pay advance tax under section 208 has failed to pay it, or where the advance tax paid is less than ninety per cent of the "assessed tax". Interest accrues at one per cent per month (or part) from 1 April following the financial year to the date of determination under section 143(1) or regular assessment, on the assessed tax or the shortfall. "Assessed tax" is defined by Explanation 1 as the tax on total income determined under section 143(1)/regular assessment, reduced by TDS/TCS on income included in that total income, reliefs under sections 89/90/90A/91, and MAT/AMT credit under section 115JAA/115JD. The ninety-per-cent threshold gives a margin of tolerance: only a shortfall beyond ten per cent of assessed tax attracts the charge, but once crossed, interest runs on the whole shortfall, not merely the excess over ten per cent.
3. Mandatory and automatic
Like its companions, section 234B is mandatory: Anjum M.H. Ghaswala (2002) 252 ITR 1 (Constitution Bench) settles that "shall" leaves no discretion, and even the Settlement Commission cannot waive it. The charge is automatic on the conditions being satisfied; a specific direction in the assessment order is not a precondition. In CIT v. Bhagat Construction Co. (2016) 383 ITR 9 the Supreme Court held that where the computation of interest appears in Form ITNS 150 — which, following Kalyankumar Ray v. CIT (1991) 191 ITR 634, is part of the assessment — the levy is valid even if the body of the assessment order is silent. The earlier proposition in Ranchi Club (247 ITR 209) that interest needs a specific direction stands diluted to that extent.
4. MAT/AMT companies and the credit set-off
Whether advance tax (and hence 234B) applies where the final liability is determined under the minimum alternate tax provisions was long contested. The Supreme Court in Joint CIT v. Rolta India Ltd. (2011) 330 ITR 470 held that companies assessed under sections 115JA/115JB are liable to pay advance tax on book profits, and 234B/234C interest follows on default — section 115JB being a self-contained code that attracts the advance-tax machinery. A linked question — the order of set-off of MAT credit — was answered in CIT v. Tulsyan NEC Ltd. (2011) 330 ITR 226: MAT credit under section 115JAA must be reduced from the tax payable before computing the advance-tax shortfall, so that 234B is charged only on the net figure. Explanation 1 to section 234B was later aligned to include the 115JAA/115JD credit in the reduction.
5. Non-residents and income subject to TDS
A major line concerns the non-resident or payee whose income was liable to deduction of tax at source. Before the Finance Act, 2012, section 209(1)(d) permitted the advance-tax computation to be reduced by tax "deductible" at source; where the whole income was so deductible, the payee owed no advance tax and could not be charged 234B for the payer's failure to deduct. This was the High Court position in DIT v. NGC Network Asia LLC (2009) 313 ITR 187 (Bom) and DIT v. Jacabs Civil Incorporated (2011) 330 ITR 578 (Del), and was affirmed by the Supreme Court in DIT v. Mitsubishi Corporation (2021) 438 ITR 174. The Finance Act, 2012 inserted a proviso to section 209(1) (w.e.f. 1 April 2012) reversing this prospectively: tax that the payer was liable to deduct but did not actually deduct can no longer reduce the advance tax payable, so from assessment year 2012-13 onward the payee may be exposed to 234B. The temporal split is therefore decisive.
6. Bona fide estimates and reassessment
At the High Court level a narrow equitable carve-out exists for genuinely unforeseeable liability: in Prime Securities Ltd. v. ACIT (2011) 333 ITR 464 (Bom) no 234B was levied where the shortfall flowed from a bona fide "nil" position on income that could not have been anticipated when advance tax fell due. This sits in tension with the strict mandatoriness of Ghaswala and should be pressed only on strong facts. Sub-section (3) extends the charge to reassessment/recomputation under sections 147/153A on incremental tax; sub-section (2A) deals with Settlement Commission applications; sub-section (4) provides for consequential adjustment on appellate/revisional orders. Where the receipt is salary — on which no advance tax arises because it is subject to TDS — the interest provisions have no application at all: Ian Peter Morris v. ACIT (2016) 389 ITR 501 (SC).
7. Finance Act, 2026
The Finance Act, 2026 does not amend section 234B or any provision of Part F. The "234" amendment in the Finance Act, 2026 is the insertion of a new fee provision, section 234-I, in Part G (Levy of fee in certain cases), linked to revised returns under the substituted section 139(5); it does not alter the advance-tax interest in section 234B. The section accordingly continues unchanged, and the case-law architecture above remains the operative guide.
B. STATUTORY TEXT (verbatim)
Reproduced verbatim from the Income-tax Act, 1961 (as amended up to and including the Finance Act, 2025; unaffected by the Finance Act, 2026). Section 234B, Part F, Chapter XVII.
Interest for defaults in payment of advance tax.
234B. (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax.
Explanation 1.—In this section, "assessed tax" means the tax on the total income determined under sub-section (1) of section 143 and where a regular assessment is made, the tax on the total income determined under such regular assessment as reduced by the amount of,—
(i) any tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income;
(ii) any relief of tax allowed under section 90 on account of tax paid in a country outside India;
(iii) any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section;
(iv) any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and
(v) any tax credit allowed to be set off in accordance with the provisions of section 115JAA or section 115JD.
Explanation 2.—Where, in relation to an assessment year, an assessment is made for the first time under section 147 or section 153A, the assessment so made shall be regarded as a regular assessment for the purposes of this section.
Explanation 3.—In Explanation 1 and in sub-section (3),—
(i) "tax on total income as determined under sub-section (1) of section 143" shall not include the additional income-tax, if any, payable under section 140B or section 143; and
(ii) tax on the total income determined under such regular assessment shall not include the additional income-tax payable under section 140B.
(2) Where, before the date of determination of total income under sub-section (1) of section 143 or completion of a regular assessment, tax is paid by the assessee under section 140A or otherwise,—
(i) interest shall be calculated in accordance with the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest, if any, paid under section 140A towards the interest chargeable under this section;
(ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax.
(2A) (a) Where an application under sub-section (1) of section 245C for any assessment year has been made, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the 1st day of April of such assessment year and ending on the date of making such application, on the additional amount of income-tax referred to in that sub-section;
(b) where as a result of an order of the Settlement Commission under sub-section (4) of section 245D for any assessment year, the amount of total income disclosed in the application under sub-section (1) of section 245C is increased, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the 1st day of April of such assessment year and ending on the date of such order, on the amount by which the tax on the total income determined on the basis of such order exceeds the tax on the total income disclosed in the application filed under sub-section (1) of section 245C;
(c) where, as a result of an order under sub-section (6B) of section 245D, the amount on which interest was payable under clause (b) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly.
(3) Where, as a result of an order of reassessment or recomputation under section 147 or section 153A, the amount on which interest was payable in respect of shortfall in payment of advance tax for any financial year under sub-section (1) is increased, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the 1st day of April next following such financial year and ending on the date of the reassessment or recomputation under section 147 or section 153A, on the amount by which the tax on the total income determined on the basis of the reassessment or recomputation exceeds the tax on the total income determined under sub-section (1) of section 143 or on the basis of the regular assessment as referred to in sub-section (1), as the case may be.
(4) Where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, the amount on which interest was payable under sub-section (1) or sub-section (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and—
(i) in a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly;
(ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded.
(5) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years.
C. AUTHORITIES
Arranged by issue-cluster: the mandatory-nature and procedure decisions; the MAT/AMT line; the non-resident / tax-deductible-at-source line (with the Finance Act, 2012 watershed); and the bona-fide / non-applicability decisions. Citations have been web-verified against the reporters.
(i) Mandatory levy; automatic charge; ITNS 150
CIT v. Anjum M.H. Ghaswala (Supreme Court, Constitution Bench)
Citation: (2002) 252 ITR 1 (SC) [5 Judges].
Holding: Interest under sections 234A/234B/234C is mandatory; the Settlement Commission cannot waive or reduce it save to the extent of CBDT circulars under section 119. The foundational authority on the mandatory character of section 234B.
CIT v. Bhagat Construction Co. (P) Ltd. (Supreme Court)
Holding: Interest under section 234B is automatic once the statutory conditions are met, even where the assessment order contains no specific direction to charge it, provided the computation is made in Form ITNS 150, which forms part of the assessment. Resolves the "no direction, no interest" controversy against the assessee.
Kalyankumar Ray v. CIT (Supreme Court)
Citation: (1991) 191 ITR 634 (SC).
Holding: The computation of tax (ITNS 150) is part of the "assessment"; the determination of the sum payable need not be set out in the body of the assessment order itself. The building block for Bhagat Construction on the validity of the interest levy.
Karanvir Singh Gossal v. CIT (Supreme Court)
Citation: (2012) 349 ITR 692 (SC).
Holding: Levy of 234A/234B interest is mandatory and needs no specific recital by the Assessing Officer; matter remitted for the limited purpose of examining the CBDT waiver circular.
(ii) MAT / AMT companies; MAT-credit set-off
Joint CIT v. Rolta India Ltd. (Supreme Court)
Citation: (2011) 330 ITR 470 (SC).
Holding: Companies whose total income is assessed under sections 115JA/115JB are liable to pay advance tax on book profits; on default, interest under sections 234B and 234C is chargeable. Section 115JB is a self-contained code that attracts the advance-tax and interest machinery.
CIT v. Tulsyan NEC Ltd. (Supreme Court)
Citation: (2011) 330 ITR 226 (SC).
Holding: MAT credit under section 115JAA must be set off against the tax payable before computing the shortfall in advance tax; interest under section 234B is therefore charged only on the net amount after allowing the credit. Read with Explanation 1 to section 234B (as later amended).
(iii) Non-residents / income subject to TDS — and the FA 2012 watershed
Pre-1-4-2012, the payee escapes 234B where the whole income was deductible at source; the FA 2012 proviso to section 209(1) reverses this prospectively.
DIT v. Mitsubishi Corporation (Supreme Court)
Citation: (2021) 438 ITR 174 (SC); 2021 INSC 495.
Holding: For periods before assessment year 2012-13, where the entire income of a non-resident/payee was subject to deduction of tax at source, no interest under section 234B is leviable for the advance-tax shortfall caused by the payer's failure to deduct, because section 209(1)(d) allowed reduction of tax "deductible". The proviso to section 209(1) inserted by the Finance Act, 2012 reverses this prospectively. Lead apex authority on the issue.
DIT v. NGC Network Asia LLC (Bombay High Court)
Citation: (2009) 313 ITR 187 (Bom).
Holding: Where the duty to deduct tax at source lies on the payer, on its failure the payee cannot be saddled with interest under section 234B. Leading High Court authority predating Mitsubishi.
DIT v. Jacabs Civil Incorporated / Mitsui & Co. Ltd. (Delhi High Court)
Citation: (2011) 330 ITR 578 (Del).
Holding: Under section 209(1)(d), tax deductible/collectible at source is reduced from advance tax payable; where the entire tax was deductible at source from payments to a non-resident, the recipient is not liable to advance tax and section 234B cannot be charged. (Also holds section 234D substantive/prospective.)
DIT v. GE Packaged Power Inc. (Delhi High Court)
Citation: (2015) 373 ITR 65 (Del).
Holding: Affirms the payer's absolute duty under section 195(1); the non-resident payee is not liable to 234B for shortfall arising from the payer's TDS default, and the contrary "inducement" view in Alcatel Lucent was not followed. Illustrates the intra-High-Court debate later settled by Mitsubishi.
(iv) Returned vs. assessed income; non-deductibility; "regular assessment"
CIT v. Ranchi Club Ltd. (Supreme Court)
Citation: (2001) 247 ITR 209 (SC), affirming the Patna High Court.
Holding: Interest under sections 234A/234B is charged in the manner the statute prescribes with reference to the tax determined. The wider observation that interest needs a specific charging direction has since been read down by Ghaswala and Bhagat Construction; cite as historically significant.
Bharat Commerce & Industries Ltd. v. CIT (Supreme Court)
Citation: (1998) 230 ITR 733 (SC).
Holding: Interest paid for delay in payment of income-tax/advance tax is not deductible as business expenditure under section 37; it retains the character of tax. Supports the compensatory-yet-tax characterisation of the 234B charge.
Modi Industries Ltd. v. CIT (Supreme Court)
Citation: (1995) 216 ITR 759 (SC).
Holding: Leading authority on the meaning of "regular assessment" — the first order of assessment under the Act — material to fixing the terminal date of the 234B charge (decided in the section 214/215 context and applied by analogy).
(v) Bona fide estimate; non-applicability (salary)
Prime Securities Ltd. v. ACIT (Bombay High Court)
Citation: (2011) 333 ITR 464 (Bom).
Holding: No interest under section 234B where the advance-tax shortfall flowed from a bona fide position (income believed nil) on a liability that could not be anticipated when advance tax fell due. A narrow, fact-driven equitable carve-out; to be pressed only on strong facts given the strict mandatoriness in Ghaswala.
Ian Peter Morris v. ACIT (Supreme Court)
Citation: (2016) 389 ITR 501 (SC).
Holding: Where the receipt is "salary" — on which no advance tax arises under Part C of Chapter XVII because it is subject to TDS — the interest provisions in Part F (sections 234B/234C) have no application. The holding is salary-specific.
CHAPTER XVII - COLLECTION AND RECOVERY OF TAX | F.—INTEREST CHARGEABLE IN CERTAIN CASES
Section 234B — Interest for Defaults in Payment of Advance Tax
Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise
Status: Live; inserted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1989.
Finance Act, 2026: Not amended by the Finance Act, 2026 (the new section 234-I is a Part G fee).
Mechanism: Simple interest @ 1% p.m. (or part) on assessed tax (or the shortfall) from 1 April of the AY to determination under section 143(1)/regular assessment, where advance tax is unpaid or below 90% of assessed tax.
Litigation profile: Most heavily litigated Part F section — mandatory levy, MAT advance tax, non-resident/TDS line, ITNS-150 procedure.
A. COMMENTARY
1. Place in the scheme
Section 234B charges interest for default in the payment of advance tax. It is the heaviest-litigated of the Part F provisions because advance tax under sections 207-210 is computed on an estimate, and the gap between estimate and final liability is where disputes arise. The section was inserted by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1 April 1989, replacing the old section 215/217 interest. It works in tandem with section 234C: 234C addresses shortfall in individual instalments during the year, while 234B addresses the overall shortfall measured against "assessed tax" from 1 April of the assessment year until determination/assessment.
2. The charge — trigger, base and period
Sub-section (1) bites in two situations: where an assessee liable to pay advance tax under section 208 has failed to pay it, or where the advance tax paid is less than ninety per cent of the "assessed tax". Interest accrues at one per cent per month (or part) from 1 April following the financial year to the date of determination under section 143(1) or regular assessment, on the assessed tax or the shortfall. "Assessed tax" is defined by Explanation 1 as the tax on total income determined under section 143(1)/regular assessment, reduced by TDS/TCS on income included in that total income, reliefs under sections 89/90/90A/91, and MAT/AMT credit under section 115JAA/115JD. The ninety-per-cent threshold gives a margin of tolerance: only a shortfall beyond ten per cent of assessed tax attracts the charge, but once crossed, interest runs on the whole shortfall, not merely the excess over ten per cent.
3. Mandatory and automatic
Like its companions, section 234B is mandatory: Anjum M.H. Ghaswala (2002) 252 ITR 1 (Constitution Bench) settles that "shall" leaves no discretion, and even the Settlement Commission cannot waive it. The charge is automatic on the conditions being satisfied; a specific direction in the assessment order is not a precondition. In CIT v. Bhagat Construction Co. (2016) 383 ITR 9 the Supreme Court held that where the computation of interest appears in Form ITNS 150 — which, following Kalyankumar Ray v. CIT (1991) 191 ITR 634, is part of the assessment — the levy is valid even if the body of the assessment order is silent. The earlier proposition in Ranchi Club (247 ITR 209) that interest needs a specific direction stands diluted to that extent.
4. MAT/AMT companies and the credit set-off
Whether advance tax (and hence 234B) applies where the final liability is determined under the minimum alternate tax provisions was long contested. The Supreme Court in Joint CIT v. Rolta India Ltd. (2011) 330 ITR 470 held that companies assessed under sections 115JA/115JB are liable to pay advance tax on book profits, and 234B/234C interest follows on default — section 115JB being a self-contained code that attracts the advance-tax machinery. A linked question — the order of set-off of MAT credit — was answered in CIT v. Tulsyan NEC Ltd. (2011) 330 ITR 226: MAT credit under section 115JAA must be reduced from the tax payable before computing the advance-tax shortfall, so that 234B is charged only on the net figure. Explanation 1 to section 234B was later aligned to include the 115JAA/115JD credit in the reduction.
5. Non-residents and income subject to TDS
A major line concerns the non-resident or payee whose income was liable to deduction of tax at source. Before the Finance Act, 2012, section 209(1)(d) permitted the advance-tax computation to be reduced by tax "deductible" at source; where the whole income was so deductible, the payee owed no advance tax and could not be charged 234B for the payer's failure to deduct. This was the High Court position in DIT v. NGC Network Asia LLC (2009) 313 ITR 187 (Bom) and DIT v. Jacabs Civil Incorporated (2011) 330 ITR 578 (Del), and was affirmed by the Supreme Court in DIT v. Mitsubishi Corporation (2021) 438 ITR 174. The Finance Act, 2012 inserted a proviso to section 209(1) (w.e.f. 1 April 2012) reversing this prospectively: tax that the payer was liable to deduct but did not actually deduct can no longer reduce the advance tax payable, so from assessment year 2012-13 onward the payee may be exposed to 234B. The temporal split is therefore decisive.
6. Bona fide estimates and reassessment
At the High Court level a narrow equitable carve-out exists for genuinely unforeseeable liability: in Prime Securities Ltd. v. ACIT (2011) 333 ITR 464 (Bom) no 234B was levied where the shortfall flowed from a bona fide "nil" position on income that could not have been anticipated when advance tax fell due. This sits in tension with the strict mandatoriness of Ghaswala and should be pressed only on strong facts. Sub-section (3) extends the charge to reassessment/recomputation under sections 147/153A on incremental tax; sub-section (2A) deals with Settlement Commission applications; sub-section (4) provides for consequential adjustment on appellate/revisional orders. Where the receipt is salary — on which no advance tax arises because it is subject to TDS — the interest provisions have no application at all: Ian Peter Morris v. ACIT (2016) 389 ITR 501 (SC).
7. Finance Act, 2026
The Finance Act, 2026 does not amend section 234B or any provision of Part F. The "234" amendment in the Finance Act, 2026 is the insertion of a new fee provision, section 234-I, in Part G (Levy of fee in certain cases), linked to revised returns under the substituted section 139(5); it does not alter the advance-tax interest in section 234B. The section accordingly continues unchanged, and the case-law architecture above remains the operative guide.
B. STATUTORY TEXT (verbatim)
Reproduced verbatim from the Income-tax Act, 1961 (as amended up to and including the Finance Act, 2025; unaffected by the Finance Act, 2026). Section 234B, Part F, Chapter XVII.
Interest for defaults in payment of advance tax.
234B. (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax.
Explanation 1.—In this section, "assessed tax" means the tax on the total income determined under sub-section (1) of section 143 and where a regular assessment is made, the tax on the total income determined under such regular assessment as reduced by the amount of,—
(i) any tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income;
(ia) any relief of tax allowed under section 89;
(ii) any relief of tax allowed under section 90 on account of tax paid in a country outside India;
(iii) any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section;
(iv) any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and
(v) any tax credit allowed to be set off in accordance with the provisions of section 115JAA or section 115JD.
Explanation 2.—Where, in relation to an assessment year, an assessment is made for the first time under section 147 or section 153A, the assessment so made shall be regarded as a regular assessment for the purposes of this section.
Explanation 3.—In Explanation 1 and in sub-section (3),—
(i) "tax on total income as determined under sub-section (1) of section 143" shall not include the additional income-tax, if any, payable under section 140B or section 143; and
(ii) tax on the total income determined under such regular assessment shall not include the additional income-tax payable under section 140B.
(2) Where, before the date of determination of total income under sub-section (1) of section 143 or completion of a regular assessment, tax is paid by the assessee under section 140A or otherwise,—
(i) interest shall be calculated in accordance with the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest, if any, paid under section 140A towards the interest chargeable under this section;
(ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax.
(2A) (a) Where an application under sub-section (1) of section 245C for any assessment year has been made, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the 1st day of April of such assessment year and ending on the date of making such application, on the additional amount of income-tax referred to in that sub-section;
(b) where as a result of an order of the Settlement Commission under sub-section (4) of section 245D for any assessment year, the amount of total income disclosed in the application under sub-section (1) of section 245C is increased, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the 1st day of April of such assessment year and ending on the date of such order, on the amount by which the tax on the total income determined on the basis of such order exceeds the tax on the total income disclosed in the application filed under sub-section (1) of section 245C;
(c) where, as a result of an order under sub-section (6B) of section 245D, the amount on which interest was payable under clause (b) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly.
(3) Where, as a result of an order of reassessment or recomputation under section 147 or section 153A, the amount on which interest was payable in respect of shortfall in payment of advance tax for any financial year under sub-section (1) is increased, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the 1st day of April next following such financial year and ending on the date of the reassessment or recomputation under section 147 or section 153A, on the amount by which the tax on the total income determined on the basis of the reassessment or recomputation exceeds the tax on the total income determined under sub-section (1) of section 143 or on the basis of the regular assessment as referred to in sub-section (1), as the case may be.
(4) Where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, the amount on which interest was payable under sub-section (1) or sub-section (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and—
(i) in a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly;
(ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded.
(5) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years.
C. AUTHORITIES
Arranged by issue-cluster: the mandatory-nature and procedure decisions; the MAT/AMT line; the non-resident / tax-deductible-at-source line (with the Finance Act, 2012 watershed); and the bona-fide / non-applicability decisions. Citations have been web-verified against the reporters.
(i) Mandatory levy; automatic charge; ITNS 150
CIT v. Anjum M.H. Ghaswala (Supreme Court, Constitution Bench)
Citation: (2002) 252 ITR 1 (SC) [5 Judges].
Holding: Interest under sections 234A/234B/234C is mandatory; the Settlement Commission cannot waive or reduce it save to the extent of CBDT circulars under section 119. The foundational authority on the mandatory character of section 234B.
CIT v. Bhagat Construction Co. (P) Ltd. (Supreme Court)
Citation: (2016) 383 ITR 9 (SC) (decided 18-11-2015).
Holding: Interest under section 234B is automatic once the statutory conditions are met, even where the assessment order contains no specific direction to charge it, provided the computation is made in Form ITNS 150, which forms part of the assessment. Resolves the "no direction, no interest" controversy against the assessee.
Kalyankumar Ray v. CIT (Supreme Court)
Citation: (1991) 191 ITR 634 (SC).
Holding: The computation of tax (ITNS 150) is part of the "assessment"; the determination of the sum payable need not be set out in the body of the assessment order itself. The building block for Bhagat Construction on the validity of the interest levy.
Karanvir Singh Gossal v. CIT (Supreme Court)
Citation: (2012) 349 ITR 692 (SC).
Holding: Levy of 234A/234B interest is mandatory and needs no specific recital by the Assessing Officer; matter remitted for the limited purpose of examining the CBDT waiver circular.
(ii) MAT / AMT companies; MAT-credit set-off
Joint CIT v. Rolta India Ltd. (Supreme Court)
Citation: (2011) 330 ITR 470 (SC).
Holding: Companies whose total income is assessed under sections 115JA/115JB are liable to pay advance tax on book profits; on default, interest under sections 234B and 234C is chargeable. Section 115JB is a self-contained code that attracts the advance-tax and interest machinery.
CIT v. Tulsyan NEC Ltd. (Supreme Court)
Citation: (2011) 330 ITR 226 (SC).
Holding: MAT credit under section 115JAA must be set off against the tax payable before computing the shortfall in advance tax; interest under section 234B is therefore charged only on the net amount after allowing the credit. Read with Explanation 1 to section 234B (as later amended).
(iii) Non-residents / income subject to TDS — and the FA 2012 watershed
Pre-1-4-2012, the payee escapes 234B where the whole income was deductible at source; the FA 2012 proviso to section 209(1) reverses this prospectively.
DIT v. Mitsubishi Corporation (Supreme Court)
Citation: (2021) 438 ITR 174 (SC); 2021 INSC 495.
Holding: For periods before assessment year 2012-13, where the entire income of a non-resident/payee was subject to deduction of tax at source, no interest under section 234B is leviable for the advance-tax shortfall caused by the payer's failure to deduct, because section 209(1)(d) allowed reduction of tax "deductible". The proviso to section 209(1) inserted by the Finance Act, 2012 reverses this prospectively. Lead apex authority on the issue.
DIT v. NGC Network Asia LLC (Bombay High Court)
Citation: (2009) 313 ITR 187 (Bom).
Holding: Where the duty to deduct tax at source lies on the payer, on its failure the payee cannot be saddled with interest under section 234B. Leading High Court authority predating Mitsubishi.
DIT v. Jacabs Civil Incorporated / Mitsui & Co. Ltd. (Delhi High Court)
Citation: (2011) 330 ITR 578 (Del).
Holding: Under section 209(1)(d), tax deductible/collectible at source is reduced from advance tax payable; where the entire tax was deductible at source from payments to a non-resident, the recipient is not liable to advance tax and section 234B cannot be charged. (Also holds section 234D substantive/prospective.)
DIT v. GE Packaged Power Inc. (Delhi High Court)
Citation: (2015) 373 ITR 65 (Del).
Holding: Affirms the payer's absolute duty under section 195(1); the non-resident payee is not liable to 234B for shortfall arising from the payer's TDS default, and the contrary "inducement" view in Alcatel Lucent was not followed. Illustrates the intra-High-Court debate later settled by Mitsubishi.
(iv) Returned vs. assessed income; non-deductibility; "regular assessment"
CIT v. Ranchi Club Ltd. (Supreme Court)
Citation: (2001) 247 ITR 209 (SC), affirming the Patna High Court.
Holding: Interest under sections 234A/234B is charged in the manner the statute prescribes with reference to the tax determined. The wider observation that interest needs a specific charging direction has since been read down by Ghaswala and Bhagat Construction; cite as historically significant.
Bharat Commerce & Industries Ltd. v. CIT (Supreme Court)
Citation: (1998) 230 ITR 733 (SC).
Holding: Interest paid for delay in payment of income-tax/advance tax is not deductible as business expenditure under section 37; it retains the character of tax. Supports the compensatory-yet-tax characterisation of the 234B charge.
Modi Industries Ltd. v. CIT (Supreme Court)
Citation: (1995) 216 ITR 759 (SC).
Holding: Leading authority on the meaning of "regular assessment" — the first order of assessment under the Act — material to fixing the terminal date of the 234B charge (decided in the section 214/215 context and applied by analogy).
(v) Bona fide estimate; non-applicability (salary)
Prime Securities Ltd. v. ACIT (Bombay High Court)
Citation: (2011) 333 ITR 464 (Bom).
Holding: No interest under section 234B where the advance-tax shortfall flowed from a bona fide position (income believed nil) on a liability that could not be anticipated when advance tax fell due. A narrow, fact-driven equitable carve-out; to be pressed only on strong facts given the strict mandatoriness in Ghaswala.
Ian Peter Morris v. ACIT (Supreme Court)
Citation: (2016) 389 ITR 501 (SC).
Holding: Where the receipt is "salary" — on which no advance tax arises under Part C of Chapter XVII because it is subject to TDS — the interest provisions in Part F (sections 234B/234C) have no application. The holding is salary-specific.