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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.
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.
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.
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
The interest is charged @1% of the amount due from the advance tax.
The interest is charged under two cases for proper treatment.
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.
If the amount of advance tax is less than 45% of the amount paid on or before 15th September.
If the amount of advance tax is less than 75% of the amount paid on or before 15th December.
If the amount of advance tax is less than 100% of the amount paid on or before 15th March.
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.
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 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.
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.
Non-Applicability
If the underpayment of advance tax is a result of underestimating below mentioned incomes, then 234C will not be applied.
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.
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.
The income tax department fixed four installments for each quarter of the financial year for making payment of advance tax of that financial year.
If the taxpayer missed the last date for filing ITR, then Interest shall be payable @ 1% per month or part of the month.
Interest u/s 234C can be avoided if payment of advance tax is deposited before the due date of installments.
No, senior citizens who don't have income from businesses and professions shall not be liable for interest u/s 234B.
Taxpayers paying tax under the presumptive scheme then they have to pay only one installment of advance tax.
Sec. 234B is applicable on the assessee if the tax payable is more than Rs. 10,000/-
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.
