Interest for Default in payment of instalments of Advance Tax u/s 234C

Income Tax Department wants you to pay your Advance Tax in 4 instalments to ease the burden of tax. These instalments must be paid on or before the due date. If you fail to do so, then tax department can impose interest penalty u/s 234C.

Advance Tax payments must be made according to the following dates:

Due date For all Taxpayers
(Including Corporates, Non-Corporates and Individuals)
15th June 15% of Assessed Tax
15th September 45% of Assessed Tax
15th December 75% of Assessed Tax
15th March 100% of Assessed Tax

Any taxpayer who opts for the scheme of computing business income under section 44AD on presumptive basis @ 8% of turnover, such taxpayer has no obligation to pay Advance Tax in instalments. However, he must pay 100% of Advance Tax on or before 15th March of Financial Year for which the tax has to be paid.

When is interest under section 234C charged?


Interest under section 234C is levied, if advance tax paid in any instalment is less than the required amount. In other words, interest under section 234C in case of deferment of different instalments of Advance Tax is levied in following cases:

  1. In case of taxpayers (other than those who opted for presumptive taxation scheme under section 44AD), interest shall be levied-
    • If Advance Tax is paid on or before 15th June is less than 12% of Assessed Tax
    • If Advance Tax is paid on or before 15th September is less than 36% of Assessed Tax
    • If Advance Tax is paid on or before 15th December is less than 75% of Assessed Tax
    • If Advance Tax is paid on or before 15th March is less than 100% of Assessed Tax

  2. In case of taxpayers who opted for presumptive taxation scheme of section 44AD, interest shall be levied if advance tax paid on or before 15th March is less than 100% of advance tax payable.

    No interest is levied on taxpayer if shortfall in payment of Advance Tax occurs due to capital gains or winning from lottery, etc.

The following key points should be kept in mind while doing calculations:

  1. Interest is charged @ 1% on the outstanding tax amount.
  2. The nature of interest is simple interest.
  3. Any fraction of month shall be considered as a full month for calculating interest.
  4. When calculating interest, the amount of taxes due shall be rounded off to the nearest multiple of 100 and ignore any fraction of 100.

Interest under section 234C is levied for a period of 3 months, in case of short fall in payment of 1st, 2nd and 3rd instalment and for 1 month, in case of short fall in payment of last instalment.

Example:
Mr. Anand had a total tax payable of Rs. 72,000 and he paid Rs. 8000 before 15th June and Rs. 15000 each in next three quarters. He had some shortfall in every instalment he paid. So by 31st of March he paid total Rs. 53,000. The remaining Rs.19,000 was paid on 10th of July next year while filing tax return.
Due to shortfall in each instalment, he was also supposed to pay interest under section 234C. The interest in his case is calculated as follows:

Interest Payable u/s. 234 C
Due by Amount of Advance Tax Due Amount of Advance Tax Paid
(till date)
Quarterly Shortfall Default in months Interest payable
@ 1% pm
15th June 10800 8000 2800 3 84
15th September 32400 23000 9400 3 282
15th December 54000 38000 16000 3 480
15th March 72000 53000 19000 1 190
Total 1036

He is also liable to pay interest u/s 234B as he failed to pay 90% of Assessed Tax by 15th March. Interest is calculated as follows:

Interest Payable u/s. 234 B
Due by Amount of Advance Tax Due Amount of Advance Tax Paid
(till date)
Quarterly Shortfall Default in months Interest payable
@ 1% pm
31st March 72000 53000 19000 4 760

So total interest payable by Mr. Anand u/s. 234 B&C will be Rs. 1,796/- (1036+760)
To know more about interest u/s 234B (default in payment of Advance Tax), click here.
To know more about interest u/s 234A (default in filing of tax return), click here.

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