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.
Apart from 234C, following interest/fee are also covered under section 234:
- Interest for default in filing ITR – Section 234A
- Interest for default in payment of Advance Tax – Section 234B
- Fee for late filing of ITR – Section 234F
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|
Let’s understand the calculation through an example:
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 to paying interest under section 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.
The only way to avoid paying interest under Section 234C is to pay advance tax on time and in accordance with the scheduled dates indicated by the Income Tax Department.
Advance tax is a ‘Pay as you earn’ tax, so it is required to be paid during the financial year in four different instalments in case your Taxable Liability is more than INR 10,000 for the financial year which stands true for you.
The due dates for advance tax installments are:
If you are eligible to pay advanced tax but have not paid advance tax, the penalty will be applicable u/s 234B and 234C.
Let us know if you have any further questions!
Hi Team, I had assumed that I will be able to pay advanced tax before March because I thought I could go for presumptive tax filing. But now it looks like I cannot opt for a presumptive taxation scheme. So does it mean that I did not pay the advanced quarterly tax that I was supposed to pay?
If yes, what is the penalty in every case or are there some exceptions to avoid this interest penalty?
Thanks in advance!
You will be charged an interest penalty under section 234C for the delay/non-payment of advance tax during the year @1% per month on the shortfall amount. Additionally, under Section 234B a penalty interest is imposed on the taxpayers in case the advance tax payment is less than 90% of assessed tax liability during the year.
You can avoid interest u/s 234B by paying at least 90% of your assessed tax liability by March 15, 2021.
Hope this helps!
I have LTCG of more than 7 lakhs from the equity for this year. Is there a way to reduce my tax liability? Also, do I have to pay the tax in advance? If I fail to do so, what will be the penalty/interest percentage I have to pay during my tax filing in 2020?
Hey @ViraajAhuja47, you can set off against non-speculative business loss like F&O for the current year. Long-term capital losses for the previous as well as the current year. Yes, you are required to pay advance tax in case your tax liability is more than INR 10,000 for the FY. The penalties for non-payment of advance tax are:
Non-payment of Advance Tax u/s 234B 3: Interest at 1% in case the taxpayer fails to pay 90% of the tax liability in the same FY
Delay in Payment of Advance Tax u/s 234C 1: if there is a delay in tax payment than interest @ 1% is applicable.
Tax paid on or before 31/03/2021 will be considered as advance tax for FY 2020-21. So a trader can determine the profits between 15th March to 31st March and pay the tax on 31st March, there will be no interest levied.
Hope this helps!
Tax audit is applicable when:
You can use this tool to determine if tax audit is applicable to you:
It is always a good practice to file your ITR and report all your financial transactions to avoid notice from the Income Tax Department. Especially after the SEBI and CBDT’s data partnership. If your total income is below the basic exemption limit, you won’t have any tax liability.
Do I have to pay Advance Tax if the TDS for the year is sufficient to cover tax liabliltiy?
Does Dividend on equity shares attract separate Advance Tax or is it just another source of income?
You are liable to pay advance tax if your total outstanding tax liability for the financial year after TDS is above INR 10,000.
To calculate your advance tax liability you need to add your estimated income for the financial year from all sources including - Salary, House Property, Capital Gains, Business & Profession and other sources.
Next, subtract all eligible deductions, expenses, and Tax Credit available to you.
Now, if your outstanding tax liability is above INR 10,000, you need to pay advance tax to avoid penalty u/s 234B and 234C.
Hope this answers your query
You can also use the advance tax calculator to know your advance tax liability under the old and new tax regime
When I pay the advance tax through the ZERODHA-QUICKO platform, does it get saved/stored? For example I have paid for Q1. so when I have to pay for Q2, will this be automatically calculated?
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