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If you have not paid your taxes, this one is for you.

Interest for default in payment of instalment(s) of advance tax [Section 234C]

Section 234C provides for levy of interest for default in payment of instalment(s) of advance tax. Before getting into the detailed provisions of section 234C, let's recall the provisions relating to the payment of advance tax by a taxpayer.

As per section 208, every person whose estimated tax liability for the year exceeds Rs. 10,000, shall pay his tax in advance in the form of 'advance tax' by following dates:

Section 234C   Attraction of Interest on Non-Payment of Taxes
Status By 15th June By 15th September By 15th December By 15th March
Taxpayers (other than those who opted for presumptive taxation scheme of section 44AD or section 44ADA) Up to 15% of advance tax Up to 45% of advance tax Up to 75% of advance tax Up to 100% of advance tax
Taxpayers who opted for presumptive taxation scheme of section 44AD or section 44ADA Nil Nil Nil Up to 100% of advance tax

Any tax paid till 31st March will be treated as advance tax.

Basic provisions

Interest under section 234C is levied, if the advance tax paid in any instalment(s) is less than the required amount. In other words, interest under section 234C in case of deferment of different instalments of advance tax is levied in the following cases:

(A) In case of taxpayers (other than those who opted for presumptive taxation scheme under section 44AD or section 44ADA), interest shall be levied-

  • If advance tax paid on or before 15th June is less than 12% of advance tax payable
  • If advance tax paid on or before 15th September is less than 36% of advance tax payable
  • If advance tax paid on or before 15th December is less than 75% of advance tax payable
  • If advance tax paid on or before 15th March is less than 100% of advance tax payable
 

(B) In case of taxpayers who opted for presumptive taxation scheme of Section 44AD or section 44ADA interest shall be levied if the advance tax paid on or before 15th March is less than 100% of advance tax payable.

No levy of interest if a shortfall in payment of advance tax is due to capital gains or winning from lottery, etc.

Interest under section 234C is not levied, if, the shortfall in payment of advance tax is due to failure to estimate the amount of capital gains or income referred to in section 2(24)(ix) (i.e. winning from lotteries, crossword puzzle, etc.) or income from a new business or income referred to in section 115BBDA (i.e., dividend received from a domestic company exceeds Rs. 10,00,000) and the taxpayer pays the required advance tax on such income as a part of immediate following instalments or till 31st March if no instalment is pending.

Rate of interest

Interest under section 234C for default in payment of instalment(s) of advance tax is charged at 1% per month or part of a month. The nature of interest is simple interest. In other words, the taxpayer is liable to pay simple interest @ 1% per month or part of a month for short payment/ non-payment of individual instalment(s) of advance tax.

 

Period of levy of interest

Interest under section 234C is levied for a period of 3 months, in case of shortfall in payment of 1st, 2nd and 3rd instalment and for 1 month, in case of shortfall in payment of the last instalment.

Amount liable for interest

Interest under section 234C is levied on the short paid amount of instalment(s) of advance tax.


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Category Income Tax, Other Articles by - Pushkar 



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