The Income Tax Department has given taxpayers an option to make advance tax payments in 4 installments. Advance tax is applicable if your net tax liability, after deducting prepaid taxes like TDS and relief is INR 10,000 or more in a financial year. However, if you still default, there are consequences in the form of interest under section 234C.
What is Interest u/s 234C?
Interest u/s 234C is levied in case of deferment of advance tax payment. Interest @ 1% is levied per month or part of it.
The taxpayer has to pay interest u/s 234C if the payment of advance tax is:
- Less than 12% of assessed tax before 15th June
- Less than 26% of assessed tax before 15th September
- Less than 75% of assessed tax before 15th December
- Less than 100% of assessed tax before 15th December
What is the difference between section 234B & section 234C?
Section 234B is the interest imposed on the taxpayers in case there is no payment of advance tax or payment is less than 90% of net tax payable during the assessment year. Hence, the liability of payment of interest u/s 234B arises after the end of the Financial Year till the date of payment of tax.
Section 234C is interest imposed on the taxpayers in case of deferment in payment of tax during the Financial Year.
Calculation of Interest u/s 234C
The below table clarifies the interest rate applicable in different cases as per the due dates.
|If paid less than 15% of advance tax up to 15th June||1% per month i.e. 3 months on the shortfall amount below 15%|
|If paid less than 45% of advance tax up to 15th September||1% per month i.e. 3 months on the shortfall amount below 45%|
|If paid less than 75% of advance tax up to 15th December||1% per month i.e. 3 months on the shortfall amount below 75%|
|If paid less than 100% of advance tax up to 15th March||1% on the shortfall amount below 100% for 1 month|
Tarun is running a small shop. His net tax liability is INR 50,000. He has paid advance tax as given below:
- INR 7500 on 15th June
- INR 12,000 on 15th September
- INR 14,000 on 15th December
- INR 10,000 on 15th March
|Due Dates||Advance Tax Payable||Total Advance Tax paid till Due Date||Shortfall||Interest|
(15% of 50,000)
(45% of 50,000)
(7,500 + 12,000)
(3,000 @ 1% x 3 months)
(75% of 50,000)
(7,500 + 12,000 + 14,000)
(4,000 @ 1% x 3 months)
(100% of 50,000)
(7,500 + 12,000 + 14,000 + 10,000)
(6,500 @ 1% x 1 month)
Hence, as per the calculation, Tarun will have to pay INR 275 interest u/s 234C.
Exceptions from paying interest u/s 234C
If you fall under any of the below criteria, you are exempted from paying advance tax, and hence interest under section 234C is also not charged.
- Resident senior citizen not having income under the head ‘PGBP‘
- If your net tax liability is below INR 10,000, interest under section 234C will not be levied.
– Interest u/s 234A of the Income Tax Act is levied on taxpayers if they delay in filing their Income Tax Return (ITR).
– The Interest u/s 234B & 234C of the Income Tax Act are levied upon those taxpayers who default in payment of Advance Tax.
Interest = Outstanding Tax @1% x number of months (delayed). Here part of the month is calculated as a full month. For example, if you are 2 months and 4 days late, interest will be charged for 5 months.
If the taxes have been completely paid off before 31st March of the FY then no interest is charged u/s 234C.