What is Section 234C?
As per the income tax department, the taxpayer should pay all the advance taxes according to the installment schedule. The four installments have been divided on a quarterly basis, i.e., one each quarter. If, in any case, the taxpayer delays the payment of advance tax, the income tax department imposes penal interest in the form of a penalty under Section 234C.
What is Advance Tax?
Advance tax is the amount of tax that is paid in advance and not at the end of the financial year. This tax is calculated on the expected income in the financial year. The advance tax is only applicable in case income tax liability exceeds Rs. 10,000 after the tax deduction at source (TDS) for the financial year.
Due Dates for Paying Advance Tax?
The Income Tax Department has specified the due dates for paying advance tax. If you fail to do so, you might have to pay interest for late payment at the time of filing your returns. Given below are the due dates for advance tax payment -
| Due Date |
Normal Taxpayers |
Taxpayers opting for presumptive income u/s 44AD or 44ADA |
| 15th June |
Pay up to 15% of the advance tax |
NIL |
| 15th September |
Pay up to 45% of the advance tax |
NIL |
| 15th December |
Pay up to 75% of the advance tax |
NIL |
| 15th March |
Pay up to 100% of the advance tax |
Pay up to 100% of the advance tax |
How is Interest Charged Under Section 234C?
When the taxpayer delays the payment of an installment fixed by the income tax department, he or she has to pay an interest under section 234C. The interest under this section is charged according to the scheduled installments.
The taxpayer has to pay interest if you pay advance tax
- Less than 15% of assessed tax before 15th June
- Less than 45% of assessed tax before 15th September
- Less than 75% of assessed tax before 15th December
- Less than 100% of assessed tax before 15th March
The interest is charged @1% of the amount due from the advance tax.
Interest is calculated on the amount after making adjustments for TDS/TCS Amount = Tax Liability - TDS/TCS.
Example: If the due date for the first installment of advance tax was June 15th, and it is paid on July 15th, the interest would be calculated for one month (June).
Calculation of Interest Under Section 234C
The interest is charged under two cases for proper treatment.
1. Case 1
Calculation of Interest under section 234C of the Income Tax Act when the taxpayer is not opting for presumptive income under section 44AD.
If the amount of advance tax is less than 15% of the amount paid on or before 15th June.
- The rate of interest will be charged 1% per month for three months.
- The amount on which interest is calculated is 15% of the amount less the tax already paid before the dates.
If the amount of advance tax is less than 45% of the amount paid on or before 15th September.
- The rate of interest will be charged 1% per month for three months.
- The amount on which interest is calculated is 45% of the amount less the tax already paid before the dates.
If the amount of advance tax is less than 75% of the amount paid on or before 15th December.
- The rate of interest will be charged 1% per month for three months.
- The amount on which interest is calculated is 75% of the amount less the tax already paid before the dates.
If the amount of advance tax is less than 100% of the amount paid on or before 15th March.
- The rate of interest will be charged 1% per month for three months.
- The amount on which interest is calculated is 100% of the amount less the tax already paid before the dates.
Example
If the total tax to be paid by Mr. X is Rs. 10,00,000. This tax is to be paid in four installments. The calculation of interest to be charged for delay will be calculated as follows:
Note: The assumption is there is no tax deduction at source (TDS)
| Due dates |
Advance tax to be payable |
Advance tax paid |
Shortfall calculated from the scheduled installment |
Months for which interest is to be calculated |
Penal interest |
| 15th June |
1,50,000 (15%) |
50,000 |
150000-50000= 100000 |
3 |
100000*1%*3=3000 |
| 15th September |
4,50,000 (45%) |
2,50,000 |
450000-250000= 200000 |
3 |
200000*1%*3=6000 |
| 15th December |
7,50,000 (75%) |
3,50,000 |
750000-350000= 400000 |
3 |
400000*1%*3=12000 |
| 15th March |
10,00,000 (100%) |
5,00,000 |
1000000-500000= 500000 |
1 |
500000*1%*1=5000 |
Thus, the interest to be paid by Mr. X is Rs. 26,000.
2. Case 2
Calculation of Interest under section 234C of the Income Tax Act when the taxpayer is opting for presumptive income under section 44AD.
| Due date |
Taxpayers opting for presumptive income under section 44AD |
| On or before 15th June |
Nil |
| On or before 15th September |
Nil |
| On or before 15th December |
Nil |
| On or before 15th March |
Upto 100% advance tax payable |
Note:
* The amount on which tax is calculated is the tax on total income minus tax deduction at source(TDS) less relief under section 90 or 91 less tax credit under section 115JD.
* If there is a shortfall of in the payment of advance tax due to wrong calculation or failure to estimate the amount of capital gains or speculative income such as gambling or lottery or so on, no interest is payable.
Applicability and Non-Applicability of Provisions of Section 234C of Income Tax Act
The provisions of section 234C are applicable if the assessee fails to pay the advance tax within the prescribed due date.
Applicability
Applicable when there is any delay in paying the advance tax in every quarter by the due date.
- If the advance tax paid by the first quarter is less than 15% of the total amount,
- If the advance tax paid by the second quarter is less than 45% of the total amount.
- If the advance tax paid by the third quarter is less than 75% of the total amount.
- If the advance tax paid by the fourth quarter is less than 100% of the total amount.
Non-Applicability
If the underpayment of advance tax is a result of underestimating the incomes mentioned below then 234C will not be applied.
- Income received by way of lottery winnings, crossword puzzles, etc.
- Gains in capital amount
- Revenue from a new venture
- More than Rs.10,000 in dividend income from a domestic firm.
Exceptions Where Interest Payment Under Section 234 Is Not Applicable
Resident senior citizens with no income from business or profession and individuals with a net tax liability below Rs 10,000 are exempt from paying advance tax. Consequently, they are not subject to interest under Section 234C.
The ITR filing for FY 2023-24 has started. If you have paid excess advance tax and want to claim a refund of the same, you must file your ITR on time and accurately. Avoid delays and penalties and expedite your Income tax refund with Tax2win’s tax experts. Get a CA-assisted ITR filing service now!
15th June
