Concept of Section 234C

As discussed the income tax department expects that the taxpayer should pay all the advance tax according to the schedule of the installments. The scheduled four installments are once in every quarter of the financial year. If in any case the taxpayer delays the payment of advance tax, the income tax department impose penal interest in the form of penalty under Section 234C.


Meaning of 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 if income tax liability exceeds Rs. 10,000 after the deduction of tax deduction at source (TDS) for the financial year.

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 is imposed 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 12% of assessed tax before 15th June
  • Less than 36% 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.

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 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 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 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 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 tax already paid before the dates.

Example

If in case 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: 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
5th  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 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 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.

Conclusion

For default in deferred payment of advance tax in installments fixed by the income tax department the taxpayer is charged a penalty in the form of interest under Section 234C. The department scheduled a proper time duration and the percentage of amount to be paid till that date. If you fail to pay that amount of advance tax on the due dates you will be charged interest @1% per month on the amount that is left to be paid.


Frequently Asked Questions

Q- How many installments have been scheduled in the income tax act 1961?

The department has fixed four installments for advance tax to be paid in each quarter of the financial year. 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 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 instalments 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 10 days late in filing my ITR, how to calculate interest penalty under Section 234A?

Ans. If 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?

Ans. Interest u/s 234C can be avoided if payment of advance tax is deposited before the cut off date of installments.


Q- Is 234b applicable for senior citizens?

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


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

Ans. Taxpayer paying tax under presumptive scheme then only one installment is their to pay advance tax.


Q- Is 234b applicable for salaried employees?

Ans. Sec. 234B is applicable on assessee if taxpayer is more than Rs. 10000/-


Q- Is 234a applicable in case of refund?

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


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.