Section 234C of the Income Tax Act

The Income Tax Department of India wants to make advance tax payment convenient and easy for its taxpayers. For the same, it provides the option of paying advance tax in four installments during one financial year. However, if one still defaults, then there the income tax department may impose interest penalty under Section 234C of the Income Tax Act. Basically, Section 234C is one of the three parts of Section 234 under which the interest is imposed by the Income Tax department.

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The Due Dates for Advance Tax Payments

The IT department wants on-time payment of the taxes by taxpayers; otherwise, it may charge interest on the late payments when one files income tax returns. The advance tax can be paid on the below-mentioned dates:

Before or On

In the situation when all the taxpayers other than taxpayer choosing presumptive income under section 44AD

The taxpayers choosing presumptive income under section 44AD

June 15th

Up to 15percent of the payable advance tax

NIL

September 15th

Up to 45 percent of the payable advance tax

NIL

December 15th

Up to 74 percent of the payable advance tax

NIL

March 15th

Up to 100 percent of the payable advance tax

Up to 100 percent of payable advance tax


Interest imposed under Section 234C

The interest for late payment of the advance tax is set as 1 percent of the total due amount. This amount is calculated from the above mentioned cut-off dates to the actual payment of the taxes that are outstanding.

Interest calculation under Section 234C when the taxpayer other than the one who is opting for presumptive income under Section 44AD:

 

Interest Rate

Interest Period

Amount of Interest Calculation

If the paid advance tax on or before 15th June is less than 15% of the total payable amount*

Simple interest is applied at the rate of 1% each month

3 months

15% of the Amount* (-) minus the tax amount that is deposited before 15th June

If the paid advance tax on or before 15th September is less than 45% of the total payable amount*

Simple interest is applied at the rate of 1% each month

3 months

45% of the Amount* (-) minus the tax amount that is deposited before 15th September

If the paid advance tax on or before 15th December is less than 75% of the total payable amount*

Simple interest is applied at the rate of 1% each month

3 months

75% of the Amount* (-) minus the tax amount that is deposited before 15th December

If the paid advance tax on or before 15th March is less than 100% of the total payable amount*

Simple interest is applied at the rate of 1% each month

-

100% of the Amount* (-) minus the tax amount that is deposited before 15th March


Here the amount on which the % of the advance tax is needed to be calculated = Tax on the Total Income (minus) TDS (minus) relief under section 90 or 91 (minus) tax credit under section 115JD.

Note: Some of the points to be noted here are:

  • No interest is levied on the taxpayer if there is any kind of shortfall in the payment of the advance tax due to the winnings or capital gains through lottery or gambling.
  • If the tax is paid is on account of failure or underestimation to estimate the capital gains or some speculative income such as income from gambling or income through lottery.
  • If the taxpayer has paid the full tax payable on the mentioned income while paying the rest of the installments of due advance tax or if there is not any due of installment, then the taxpayer pays these taxes before completion of the financial year.
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Illustrations to Understand Section 234C

Let us assume that the total tax liability of an individual for a financial year is Rs.100, 000 and it is required to be paid in installments as mentioned in the above tables. However, we are assuming that there is no deduction of TDS here.

If one makes partial payments, then he/she is liable to pay the interest according to the last column of the below table:

Date of Payment

Payable Advance Tax

Total Paid Advance Tax

Cumulative Shortfall

Cumulative Penalties

June 15th

15, 000

5, 000

10, 000

1% * 3 * 10, 000 = 300

September 15th

45, 000

20, 000

25, 000

1% * 3 *25, 000 = 750

December 15th

75, 000

40, 000

35, 000

1% * 3 * 35, 000 = 1050

March 15th

1, 00, 000

50, 000

50, 000

1% * 1 * 50, 000 = 500

Total Payable Interest = Rs.2600

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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