Section 234C Of The Income Tax Act: Interest On Default Of Advance Tax
The Income Tax Department levies different types of interest on delays and defaults of income tax payments. If your total tax payable is more than Rs. 10,000 in a financial year, you are expected to pay advance taxes. Section 234C of the Income Tax Act levies a penalty if you miss one or multiple instalments of advance tax.
So, what penalties are applicable for defaults on advance tax? Keep reading this article to find out more about Section 234C.
What Are the Provisions of Section 234C?
Section 234C of the Income Tax Act imposes interest on taxpayers who have not paid the instalments of advance tax fully/partly. This is a provision under Section 208 where you are required to pay your annual tax in four instalments if your estimated tax liability exceeds Rs. 10,000 in a financial year.
Any assessee, including salaried employees, self-employed individuals, companies, and partnership firms with a total tax liability of the above amount, has to pay advance tax. However, senior citizens (60 years or older) residing in India with no income under ‘Income from business and profession’ are exempted.
Taxpayers have to pay a certain portion of their advance tax within due dates specified by the IT Department. The presumptive taxation scheme allows you to skip instalments. The following table lists the due dates of these instalments.
| Due Dates | For Taxpayers Opting for Presumptive Scheme u/s 44AD | For All Other Taxpayers |
| June 15 | Nil | Up to 15% advance tax |
| September 15 | Nil | Up to 45% of advance tax |
| December 15 | Nil | Up to 75% of advance tax |
| March 15 | 100% of advance tax | Up to 100% of the advance tax |
Computation of Interest Penalty
Under Section 234C of the Income Tax Act, taxpayers who have made short or non-payment of advance taxes are liable to pay 1% interest every month. The nature of this interest is simple interest, calculated from the cut-off dates given above until a taxpayer pays the outstanding dues.
Interest u/s 234C gets imposed for up to three months for a shortfall in payment of 1st, 2nd and 3rd instalments. For the 4th instalment, interest is imposed for one month in case of any shortfall.
For calculation of interest penalty, a fraction of a month of delay is taken as a full month. The total income tax liability is rounded off to the nearest multiple of 100, with any fraction values ignored for interest calculation.
The assessed tax on which one calculates the total income tax is the taxable income minus these:
- Tax credit (u/s 115JAA/115JD)
- TDS and TCS
- Tax deduction/relief under Section 89, Section 90 etc.
Calculating Interest u/s 234C
Take a look at the following example to know how to calculate interest under Section 234C of the Income Tax Act.
Mr Singh is a business owner with a total tax liability of Rs. 50,000 in a year. He has not opted for the presumptive taxation scheme u/s 44AD or 44ADA. He made the following advance tax payments in a year.
- Rs. 5500 on June 15
- Rs. 20,000 on September 15
- On December 15, Rs. 8000
- Rs. 10,000 on Rs. March 15
This table gives a detailed calculation of his payable tax and penalty u/s 234C.
| Instalment Due Date | Advance tax Liability | Advance Tax Paid | Cumulative Tax | Penalties Applicable |
| June 15 | Rs. 7500 (15% of 50,000) | Rs. 5500 | Rs. 2000 (short) | 1% x 3 x 2000 = Rs. 60 |
| September 15 | Rs. 22,500 (45% of 50,000) | Rs. 20,000 | Rs. 3000 (excess) | Nil |
| December 15 | Rs. 37,500 (75% of 50,000) | Rs. 8000 | Rs. 4000 (short) | 1% x 3 x 4000 = Rs. 120 |
| March 15 | Rs. 50,000 (100% of 50,000) | Rs. 10,000 | Rs. 6500 (short) | 1% x 1x 6500 = Rs. 65 |
Exceptions of Section 234C of IT Act
The interest levied u/s 234C does not apply if:
- The taxpayer has paid at least 12% of the advance tax before June 15 or 36% before September 15.
- The taxpayer has opted for the presumptive taxation scheme u/s 44AD or 44ADA and has paid 100% of advance tax before March 31.
- Shortfalls in advance tax payment are because of failure to estimate capital gains from speculative income u/s 2(24)(ix). This includes winnings from lotteries, gambling, crossword puzzles etc.).
- Interest u/s 234C is also not applicable if it is due to a failure to compute one’s capital gains.
- Income from a new business or dividend received from a domestic company exceeding Rs. 10,00,000 does not fall u/s 234C. This is provided that the taxpayer pays the required advance tax by March 31.
Also read: Section 10 of the Income Tax Act
Final Word
The facility of advance tax makes it easy and convenient for taxpayers to clear their outstanding dues in instalments. Section 234C of the Income Tax Act imposes a penalty on those who do not pay tax in time. However, those who have opted for the presumptive taxation scheme are exempted from paying these instalments.
Frequently Asked Questions
Under the presumptive taxation scheme u/s 44AD, eligible businesses can declare profits at 8% for non-digital and 6% for digital transactions. Only businesses and professionals with total turnover/sales less than Rs. 2 crore and gross receipts of less than Rs. 50 lakh in a financial year can apply.
Yes, under Section 234A, simple interest at a 1% rate is levied for delay in filing income tax returns. This is charged for every month of delay in filing returns after the specified due date. For interest calculation, a part of a month in the delay is considered a full month.
Section 234B deals with the levy of interest on default in payment of advance tax. This advance tax is applicable if a taxpayer’s total outstanding dues cross Rs. 10,000 in a financial year. Section 234B is applicable when taxpayers have not paid any advance tax or have paid less than 90% of the assessed tax.
Under Section 143 1) of the IT Act, assessed tax refers to the amount of tax under regular assessment. This is the tax on total income after deductions from tax credit (u/s 115JAA and 115JD), tax relief (u/s 89, 90, 90A and 91) and tax deducted/collected at source.
The Budget 2021 halved the total penalty applicable for late filing of income tax returns from Rs. 10,000. Now, a person filing belated returns will have to pay a penalty of Rs. 5000. However, if your income is below the taxable limit, you do not have to pay any penalty.
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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