The income tax department strives to make it as easy and convenient for citizens to comply with advance tax payments. So, one has the option of paying it in 4 instalments over the financial year.
However, if you still default, there are some consequences in the form of an interest penalty. Basically, Section 234C deals with interest to be levied on defaulters of advance tax instalment payments.
What Is An Advance Tax?
Advance tax means that applicable income tax should be calculated and paid in advance, that is, during the fiscal year rather than at the end of the year. Current laws require taxpayers to pay advance tax only when their income tax liability for the fiscal year exceeds Rs.10,000 after deducting TDS for the applicable fiscal year.
Due Dates For Paying Advance Tax
The income tax department expects you to pay your taxes on time. Otherwise, you will be charged interest for the late payment, at the time of filing your returns. Advance tax is paid on the following dates of a financial year:
On or Before | Normal taxpayers | Taxpayers opting for presumptive income u/s 44AD or 44ADA |
15th June | Up to 15% of advance tax payable | NIL |
15th September | Up to 45% of advance tax payable | NIL |
15th December | Up to 75% of advance tax payable | NIL |
15th March | Up to 100% of advance tax payable | Up to 100% of advance tax payable |
Interest On Late Payment Of Advance Tax
The interest for late payment is set at 1% per month on the amount of tax due. It is calculated from the beginning of such a quarter till the date of actual payment of outstanding taxes.
What Is The Difference Between Section 234B & Section 234C?
Section 234B imposes interest on taxpayers who fail to pay advance tax or pay less than 90% of the net tax payable during the assessment year. As a result, the need to pay interest under Section 234B arises after the end of the fiscal year until the date of tax payment.
Section 234C imposes interest on taxpayers who fail to pay their taxes on time during the fiscal year.
Example: For the FY 2023-24, if there is any deficit in payment of taxes, then Interest u/s 234C will be computed for delay till 31st Mar 2024, any delay in payment of taxes after 1st April 2024 till the date of such payment Section 234B interest will be computed while your file your ITR
Calculation Of Interest Under Section 234C
The interest on delayed payment of advance tax in case of a taxpayer other than the one opting for presumptive income u/s 44AD is as below:
Particulars | Rate of Interest | Period of Interest
| Amount on which interest is calculated |
If the Advance Tax paid on or before June 15 is less than 15% of the Amount* | Simple interest @1% per month | 3 months | 15% of [Amount* (-)tax already deposited before June 15] |
If Advance Tax paid on or before September 15 is less than 45% of the Amount* | Simple interest @1% per month | 3 months | 45% of [Amount* (-) tax already deposited before September 15] |
If Advance Tax paid on or before December 15 is less than 75% of the Amount* | Simple interest @1% per month | 3 months | 75% of [Amount* (-) tax already deposited before December 15] |
If Advance Tax paid on or before March 15 is less than 100% of the Amount* | Simple interest @1% per month | – | 100% of [Amount* (-) tax already deposited before March 15] |
*amount refers to assessed tax = Tax liability - TDS/TCS - Section 90 Relief
Criteria Under Which Advance Tax Interest Is Not Payable
- No interest is payable if there is any shortfall in payment of advance tax due if it is on account of underestimation or failure to estimate the amount of capital gains or speculative income (lottery income, gambling income, etc).
- The taxpayer has paid in full, the tax payable on the income mentioned above while paying the remaining instalments of advance tax due, or if no instalment is due, the taxpayer pays them before the end of the financial year.
Illustration To Calculate Interest For Late Payment
Consider that your total tax liability for this financial year is Rs.100,000, and it needs to be paid in instalments as explained above. Assume there is no TDS here. If you made partial payments instead, you will be liable to pay interest as per the last column in the table below:
Payment Dates | Advance Tax payable | Total Advance Tax paid | Shortfall (Cumulative) | Penalties (Cumulative) |
15th June | 15,000 | 5,000 | 10,000 | @1% * 3*10,000 = 300 |
15th September | 45,000 | 25,000 | 20,000 | @1% * 3 *20,000=600 |
15th December | 75,000 | 35,000 | 40,000 | @1% * 3 *40,000=1200 |
15th March | 1,00,000 | 50,000 | 50,000 | 1% * 1 *50,000=500 |
The total interest payable is Rs 2,600.
Exceptions To Paying Interest Under Section 234C
If you meet any of the following criteria, you are exempt from paying advance tax and, as a result, interest under Section 234C is not assessed.
- A resident senior citizen with no income under the 'PGBP' heading
- If your net tax liability is less than Rs 10,000, no interest will be charged under Section 234C.
Remember, ClearTax automatically calculates the interest under Section 234 for you based on the amounts you enter and the dates.