Important Keyword: Advance Tax, Income Tax Filing, Section 234C.
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Section 234C: Interest on Deferment in Payment of Advance Tax
The Income Tax Department allows taxpayers to pay their tax liabilities in advance through four installments, known as advance tax. This payment is required if the net tax liability, after deducting prepaid taxes like TDS and relief, amounts to INR 10,000 or more in a financial year. However, failure to meet these obligations can lead to consequences in the form of interest under section 234C of the Income Tax Act.
Section 234C imposes interest when there is a default in paying advance tax. The interest is calculated based on the amount of tax payable and the delay period between the due dates of the installments. It serves as a deterrent for taxpayers to ensure timely and regular payment of their advance tax obligations to avoid accruing additional financial charges.
What is Interest u/s 234C?
Interest u/s 234C is levied in case of deferment of advance tax payment. Interest @ 1% is levied per month or part of it.
The taxpayer has to pay interest u/s 234C if the payment of advance tax is:
- Less than 12% of assessed tax before 15th June
- Less than 26% of assessed tax before 15th September
- Less than 75% of assessed tax before 15th December
- Less than 100% of assessed tax before 15th December
What is the difference between section 234B & section 234C?
Section 234B:
- Purpose: Imposes interest when a taxpayer fails to pay advance tax or pays less than 90% of the assessed tax liability during the financial year.
- Timing: Liability for interest under Section 234B arises after the end of the financial year and continues until the date of actual payment of tax.
- Rate: Typically 1% simple interest per month or part thereof on the amount of tax payable but not paid as per advance tax requirements.
Section 234C:
- Purpose: Imposes interest when there is deferment or delay in the payment of advance tax installments during the financial year.
- Criteria: Taxpayer is required to pay advance tax in installments as per specific percentages of the assessed tax liability by prescribed due dates (15th June, 15th September, 15th December, and 15th March).
- Rate: Generally 1% per month or part thereof on the amount of shortfall in payment compared to the prescribed percentages.
Calculation of Interest u/s 234C
The below table clarifies the interest rate applicable in different cases as per the due dates.
| Scenario | Interest |
| If paid less than 15% of advance tax up to 15th June | 1% per month i.e. 3 months on the shortfall amount below 15% |
| If paid less than 45% of advance tax up to 15th September | 1% per month i.e. 3 months on the shortfall amount below 45% |
| If paid less than 75% of advance tax up to 15th December | 1% per month i.e. 3 months on the shortfall amount below 75% |
| If paid less than 100% of advance tax up to 15th March | 1% on the shortfall amount below 100% for 1 month |
EXAMPLE :
Tarun is running a small shop. His net tax liability is INR 50,000. He has paid advance tax as given below:
- INR 7500 on 15th June
- INR 12,000 on 15th September
- INR 14,000 on 15th December
- INR 10,000 on 15th March
| Due Dates | Advance Tax Payable | Total Advance Tax paid till Due Date | Shortfall | Interest |
| 15th June | 7,500 (15% of 50,000) | 7,500 | 0 | 0 |
| 15th September | 22,500 (45% of 50,000) | 19,500 (7,500 + 12,000) | 3,000 | 90 (3,000 @ 1% x 3 months) |
| 15th December | 37,500 (75% of 50,000) | 33,500 (7,500 + 12,000 + 14,000) | 4,000 | 120 (4,000 @ 1% x 3 months) |
| 15th March | 50,000 (100% of 50,000) | 43,500 (7,500 + 12,000 + 14,000 + 10,000) | 6,500 | 65 (6,500 @ 1% x 1 month) |
Hence, as per the calculation, Tarun will have to pay INR 275 interest u/s 234C.
Exceptions from paying interest u/s 234C
Exceptions exist under Section 234C of the Income Tax Act where taxpayers are exempted from paying interest for deferment in advance tax payments. These exceptions are designed to provide relief under specific circumstances:
- Resident Senior Citizen without Business Income:
- If you are a resident senior citizen and your income does not include profits and gains from business or profession (PGBP), you are exempted from paying advance tax. Consequently, interest under Section 234C is not applicable in such cases.
- Net Tax Liability Below INR 10,000:
- If your total tax liability after deducting prepaid taxes like TDS is less than INR 10,000 for the financial year, you are not required to pay advance tax. Therefore, interest under Section 234C will not be levied.
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Official Income Tax Return filing website: https://incometaxindia.gov.in/
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