TaxTMI 
TaxTMI 
Modernizing Interest Liability for Advance Tax Defaults : Clause 424 of the Income Tax Bill, 2025 vs. Section 234B of the Income-tax Act, 1961
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.... a steady inflow of revenue to the exchequer and to discourage taxpayers from deferring their tax payments until the end of the financial year. Interest for default is thus a crucial fiscal tool, designed both as a compensatory and deterrent measure. This commentary undertakes a detailed legal analysis of Clause 424 of the Bill, breaking down its constituent provisions, examining its objectives, and exploring its practical implications. It also undertakes a comparative analysis with Section 234B of the Act of 1961, highlighting similarities, differences, and the potential impact of the proposed changes. Objective and Purpose The primary objective behind both Clause 424 and Section 234B is to ensure timely compliance with advance tax obli....
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.... reasonable margin for estimation errors while still encouraging substantial compliance. The interest is levied at the rate of 1% per month or part thereof, calculated from the 1st April following the tax year until the date of determination of total income u/s 270(1) or completion of regular assessment, whichever is earlier. 2. Quantum of Assessed Tax and Reductions (Sub-section (2)) Sub-section (2) defines "assessed tax" as the tax on the total income determined u/s 270(1) or, where a regular assessment is made, the tax on the total income determined under such regular assessment. The provision mandates specific reductions from the assessed tax: * (a) Tax deducted or collected at source (TDS/TCS) under Chapter XIX-B; * (b) Relief o....
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....ment. This mechanism ensures that the interest liability is proportionate to the period for which the tax remained unpaid, and avoids double charging of interest. 5. Interest on Increased Tax Liability Post-Reassessment (Sub-section (5)) If, as a result of reassessment or recomputation u/s 279, the amount on which interest was payable increases, the assessee is liable to pay additional interest at 1% per month or part thereof, from 1st April following the tax year until the date of reassessment or recomputation. The formula provided (A = B - C) ensures that interest is levied only on the incremental amount. 6. Interest Adjustment on Appeal or Revision (Sub-section (6)) Sub-section (6) deals with situations where the assessed tax is inc....
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.... 406/407 (presumably analogous to section 210 of the old Act). b. Reduction from Assessed Tax * Section 234B(1) allows reductions for tax deducted/collected at source under Chapter XVII, reliefs u/ss 89, 90, 90A, 91, and tax credits u/ss 115JAA/115JD. * Clause 424(2) allows reductions for TDS/TCS under Chapter XIX-B, reliefs u/ss 157, 159(1), 159(2), deduction u/s 160, and tax credit u/s 206(13). * The numbering and content of the referenced sections have changed, reflecting a restructuring of the tax code in the new Bill. However, the substantive reliefs (foreign tax credit, TDS/TCS, etc.) are broadly analogous. c. Rate of Interest * Both provisions stipulate a rate of 1% per month or part thereof. Historically, Section 234B had ....
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....424 does not contain any explicit provision analogous to section 234B(2A), possibly reflecting a policy shift or structural change in the new Bill regarding settlement mechanisms. i. Explanation of "Regular Assessment" * Section 234B (Explanation 2) deems assessments u/s 147 or 153A as regular assessments for interest computation. Clause 424(3)(a) provides a similar deeming provision for assessments u/s 279. 2. Potential Ambiguities and Issues * Section References: The renumbering and possible rewording of referenced sections in the Bill may create transitional ambiguities. Stakeholders will need to carefully map old provisions to the new code for compliance and litigation purposes. * Exclusion of Settlement Commission: The absence ....