What is Section 234C?
Section 234C of the Income Tax Act, 1961 contains various provisions that are applicable in case of delay in the payment of advance tax by a taxpayer. The tax department expects timely payment of advance tax as per the scheduled four installments i.e. once every quarter of a financial year. In case you fail to do so, the tax department can impose interest penalty u/s 234C.
What is Advance Tax?
Advance tax means that applicable income tax should be calculated and paid in advance i.e. during a fiscal on the basis of expected income rather than at the end of the year. Under current rules, taxpayers need to pay advance tax only when the income tax liability based on the expected income for the fiscal exceeds Rs. 10,000 after deducting TDS for the applicable financial year.
Also Read: Know All About Advance Tax
Advance Tax Payment Schedule
| Due Date | Tax payable by those who did not opt for presumptive income u/s 44AD | Tax payable by those opting for presumptive income u/s 44AD |
| 15th June | 15% of Assessed Tax | Nil |
| 15th September | 45% of Assessed Tax | Nil |
| 15th December | 75% of Assessed Tax | Nil |
| 15th March | 100% of Assessed Tax | Upto 100% of Advance Tax
Payable |
Interest Payable Under Section 234C
Interest is charged at 1% of the total outstanding due on the advance tax payable. It is calculated from the individual cut off dates separately till the date on which the due tax actually gets paid.
It should be noted that interest will be charged only when the advance tax paid by the individual on or before 15th June and 15th September is less than 12% and 36% of respective net tax dues. Further, no interest is levied on the taxpayer for any shortfall in payment of advance tax if it is on account of unexpected or underestimated capital gains or speculative income (winning a lottery, gambling income etc.)
Interest Calculation Under Section 234C
- Interest is charged at 1% per month on net outstanding tax.
- Interest is calculated as per simple interest calculation.
- Any part of a month will be considered as a full month for interest calculation purposes.
Note: Interest penalty under section 234B is levied for delay in payment of advance tax when advance tax paid is less than 90% of the assessed tax at the end of the financial year. This penal interest u/s 234B is calculated separately from interest levied under section 234C.
Also Read: Penal Interest Imposed Under Section 234B
Calculation of Penal Interest Payable u/s 234C
Suppose Mr. X had Rs. 85000 payable as the net advance tax based on his estimated income for the year. His payment schedule of advance tax would be as follows
| Date of Payment | Total Amount (Rs.) |
| On or Before 15th June | 10750 |
| On or Before 15th September | 15000 |
| On or Before 15th December | 25000 |
| On or Before 15th March | 40,000 |
| On 18th July | 85,000 |
Let’s calculate the interest liability under section 234B (if any)
| Due Date | Amount Due | Actual Amount Paid | Shortfall | Time Period of Default | Interest u/s 234B (@1%) |
| 15th June | 12750 | 10750 (>12% of net tax due) | 2000 | Nil | Nil |
| 15th September | 38250 | 15000 | 23250 | 3 Months | 697.50 |
| 15th December | 63750 | 25000 | 38750 | 3 Months | 1162.50 |
| 15th March | 85000 | 40000 | 45000 | 1 Month | 450 |
| Total Penal Interest u/s 234B | 2310 |
Since total tax paid on or before 31st March 2018 is less than 90% of the advance tax. Mr. X is also liable to pay interest penalty under section 234B as well. Since Mr. X cleared his net tax liability only on 18th July, he will be charged interest for 4 months (April, May, June and July) u/s 234B.
Let’s calculate interest payable under section 234B
| Due Date | Amount Payable | Amount Paid | Shortfall | Time Period of Default | Interest Payable u/s 234B (@1% for 4 months) |
| 31st March | 85000 | 40000 | 45000 | 4 Months | 1800 |
Therefore as per section 234B and 234C, Mr. X is liable to pay total penal interest = Rs.4110 (1800+2310)