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Section 234C of Income Tax Act - Interest on Deferred Payment of Advance Tax

Updated on: 23 May, 2024 06:13 PM

For timely and hassle-free payments of tax, the Income Tax Act has made various provisions for making payments of advance tax. As per the Income Tax Act, the taxpayers are required to pay the advance tax in 4 installments, and any delay in such payment results in a penal interest that is levied under section 234C of the Income Tax Act.

What is Section 234C?

As per the income tax department the taxpayer should pay all the advance tax according to the schedule of the installments. 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 deduction of 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 advance tax NIL
15th September Pay up to 45% of advance tax NIL
15th December Pay up to 75% of advance tax NIL
15th March Pay up to 100% of advance tax Pay up to 100% of 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


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.

  1. The rate of interest will be charged 1% per month for three months.
  2. 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.

  1. The rate of interest will be charged 1% per month for three months.
  2. 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.

  1. The rate of interest will be charged 1% per month for three months.
  2. 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.

  1. The rate of interest will be charged 1% per month for three months.
  2. 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 less tax deduction at source(TDS) less relief under section 90 or 91 less tax credit under section 115JD.

* If there is a shortfall of 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 below mentioned incomes, 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.
  • 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!

Frequently Asked Questions

Q- How many installments have been scheduled in the Income Tax Act 1961?

The department has fixed four installments for the advance tax to be paid in each quarter of the financial year. The default in making these advance payments in each quarter will make you pay interest on the amount at the rate of 1% per month.


Q- What is the interest that is charged for each month's delay of the advance payment under section 234C?

You will be charged interest @ 1% per month for the number of months you fail to pay the installments that are fixed in the income tax act 1961. If you pay the part payment of the installment fixed, the interest is to be calculated on the leftover amount you have to pay.


Q- How many installments are to be paid in one financial year?

The income tax department fixed four installments for each quarter of the financial year for making payment of advance tax of that financial year.


Q- I am 4 months and 10 days late in filing my ITR; how do I calculate the interest penalty under Section 234A?

If the taxpayer missed the last date for filing ITR, then Interest shall be payable @ 1% per month or part of the month.


Q- How to avoid Interest u/s 234C?

Interest u/s234C can be avoided if payment of advance tax is deposited before the due date of installments.


Q- Is 234b applicable for senior citizens?

No, senior citizens who don't have income from businesses and professions shall not be liable for interest u/s 234B.


Q- Is 234b and 234c applicable to 44ad?

Taxpayers paying tax under the presumptive scheme then they have to pay only one installment of advance tax.


Q- Is 234b applicable for salaried employees?

Sec. 234B is applicable on the assessee if the tax payable is more than Rs. 10,000/-


Q- Is 234a applicable in case of refund?

Under section 234A, interest is levied for delay in filing the return of income. so, Sec. 234A is also applicable in case of a refund.


CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.

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