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Section 234C – Interest For Default In Payment Of Instalment(s) Of Advance Tax

As per the Income Tax Act, every assessee who has Income Tax payable (more than INR 10,000) should pay tax in advance. This Advance Tax has to be paid in instalments. Taxpayers (other than those who have opted for presumptive taxation scheme of section 44AD or section 44ADA) have to pay Advance Tax instalments by the following dates:

Instalment Number Due date Amount
1st Instalment 15 June Up to 15% of Advance Tax
2nd Instalment 15 September Up to 45% of Advance Tax
3rd Instalment 15 December Up to 75% of Advance Tax
4th Instalment 15 March 100% of Advance Tax

Taxpayers who have opted for a presumptive taxation scheme of section 44AD or section 44ADA have the option to pay 100% of the calculated Advance Tax in one instalment by the 15 of March of the relevant Financial year.

To ensure these due dates are met, and the amounts are deposited in the right proportions, the Government has introduced section 234C. Under this section, interest is levied if the advance tax paid in any instalment(s) is less than the required amount. In this article, we will discuss the provisions of section 234C in brief.

Applicability Of Section 234C

  • Interest u/s 234C will be levied when taxpayers (other than those who have opted for the presumptive taxation scheme under section 44AD or section 44ADA) do not deposit Advance Tax based on the following terms:
Instalment Number Due date Amount
1st Instalment 15 June Up to 12% of Advance Tax
2nd Instalment 15 September Up to 36% of Advance Tax
3rd Instalment 15 December Up to 75% of Advance Tax
4th Instalment 15 March 100% of Advance Tax
  • In case of taxpayers who have opted for a presumptive taxation scheme of Section 44AD or section 44ADA interest u/s 234C will be levied if the Advance Tax paid on or before 15 March is less than 100% of advance tax payable.

Rate Of Interest

Interest under section 234C for default in payment of instalment(s) of advance tax is charged at 1% (simple interest) per month (or part of a month).

Calculation Of Interest u/s 234C

The interest under section 234C is levied for a period of:

  • 3 months – In case there is a shortfall in the payment of 1st, 2nd and 3rd instalment and
  • 1 month – In case there is a shortfall in the payment of the last instalment.

This interest is to be calculated on the short paid amount of the relevant instalment(s).

Points To Remember

  • Interest under section 234C is not levied if, the shortfall in payment of Advance Tax is due to a failure in estimating the:
    • Amount of capital gains or
    • Winnings from lotteries, crossword puzzle, etc. or
    • Income from a new business or
    • Dividend received from a domestic company (amount exceeds INR 10,00,000).

However, this exception is available only if the taxpayer pays the calculated Advance Tax (on such income) in the next instalment or before 31 March if no instalment is pending.

  • Any tax paid till 31 March is treated as advance tax.
  • For calculation of interest u/s 234B, a fraction of a month should be considered as a full month.
  • The amount of tax, penalty or other sums in respect of which interest is to be calculated should be rounded off to the nearest multiple of INR 100.

Illustration

Mr A has a tax Liability of INR 45,500 in the FY 2019-20. He has paid advance tax as follows:

Amount paid Date of payment
INR 8,000 15 June 2019
INR 11,000 15 September 2019
INR 12,000 15 December 2019
INR 14,500 15 March 2020

Will Mr A be liable to pay interest under section 234C, if yes, then how much?

Based on these details, interest u/s 234C can be calculated as follows:

Instalment Amount paid (INR) Cumulative amount paid (INR) Amount to be paid (INR) Interest u/s 234C (INR) Comments
1st Instalment 8,000 8,000  6,825 NA Advance Tax paid should not be less than 15% of tax payable (45,500*15%)
2nd Instalment 11,000 19,000 20,475 NA

Though there is a shortfall of INR 1,475, interest u/s 234C will not be applicable as Mr A has paid a minimum of 36% as advance

tax by 15th September 2019 (INR 16,380 : INR 45,500*36%).

Advance Tax paid should not be less than 45% of tax payable (45,500*45%)
3rd Instalment 12,000 31,000 34,125 93* Advance Tax paid should not be less than 75% of tax payable (45,500*75%)
4th Instalment 14,500 45,500 45,500 NA 100% of tax payable should be paid as Advance Tax

*In the 3rd instalment, there is a shortfall of INR 3,125. Here, interest u/s 234C will be applicable because the tax paid by 15 December is less than 75% of the tax payable. Interest will be calculated at the rate of 1% for 3 months.

Interest u/s 234C: INR 93 (INR 3,100*1%*3 months)