To ensure smooth tax payments, the Income Tax Act has set up rules for paying advance tax. Taxpayers must pay their advance tax in four installments.
If there’s any delay in these payments, a penal interest will be charged under Section 234C of the Income Tax Act.
What is Section 234C?
Section 234C of the Income Tax Act requires taxpayers to pay their advance taxes in four quarterly installments. If a taxpayer delays any of these payments, the income tax department imposes a penal interest as a penalty under this section.
What is Advance Tax?
Advance tax is the tax you pay ahead of the end of the financial year, based on your expected income. It’s required when your total income tax liability exceeds ₹10,000 after accounting for Tax Deducted at Source (TDS).
The Income Tax Department sets specific due dates for these payments. If you miss these deadlines, you may face interest charges when you file your returns. Here are the due dates for advance tax payments:
| Due Date | Normal Taxpayers | Taxpayers Using Presumptive Income (Sections 44AD or 44ADA) |
| 15th June | Pay up to 15% of advance tax | NIL |
| 15th September | Pay up to 45% of advance tax | NIL |
| 15th December | Pay up to 75% of advance tax | NIL |
| 15th March | Pay up to 100% of advance tax | Pay up to 100% of advance tax |
How is Interest Charged Under Section 234C?
If a taxpayer misses a scheduled advance tax payment, they must pay interest under Section 234C. This interest is based on the specific installment amounts set by the income tax department. Interest is charged if the taxpayer pays less than the required percentage of the assessed tax by the due dates:
- Less than 15% by June 15
- Less than 45% by September 15
- Less than 75% by December 15
- Less than 100% by March 15
The interest rate is 1% of the unpaid advance tax amount. It is calculated on the amount owed after adjusting for Tax Deducted at Source (TDS) or
Tax Collected at Source (TCS):
Amount = Tax Liability – TDS/TCS
Example: If the first installment due on June 15 is paid late on July 15, the interest would be calculated for one month (June).
Calculation of Interest Under Section 234C
Interest is calculated under Section 234C in two scenarios:
Taxpayer Not Opting for Presumptive Income (Section 44AD)
If advance tax is less than 15% paid by June 15:
- Interest: 1% per month for 3 months.
- Amount for interest calculation: 15% of total tax due minus any tax already paid.
If advance tax is less than 45% paid by September 15:
- Interest: 1% per month for 3 months.
- Amount for interest calculation: 45% of total tax due minus any tax already paid.
If advance tax is less than 75% paid by December 15:
- Interest: 1% per month for 3 months.
- Amount for interest calculation: 75% of total tax due minus any tax already paid.
If advance tax is less than 100% paid by March 15:
- Interest: 1% per month for 1 month.
- Amount for interest calculation: 100% of total tax due minus any tax already paid.
Example
If Mr. Kumar has a total tax liability of ₹10,00,000 to be paid in four installments, the interest calculation for delays is as follows (assuming no TDS):
| Due Date | Advance Tax Due | Advance Tax Paid | Shortfall | Months | Penal Interest |
| 15th June | ₹1,50,000 (15%) | ₹50,000 | ₹1,50,000 – ₹50,000 = ₹1,00,000 | 3 | ₹1,00,000 × 1% × 3 = ₹3,000 |
| 15th September | ₹4,50,000 (45%) | ₹2,50,000 | ₹4,50,000 – ₹2,50,000 = ₹2,00,000 | 3 | ₹2,00,000 × 1% × 3 = ₹6,000 |
| 15th December | ₹7,50,000 (75%) | ₹3,50,000 | ₹7,50,000 – ₹3,50,000 = ₹4,00,000 | 3 | ₹4,00,000 × 1% × 3 = ₹12,000 |
| 15th March | ₹10,00,000 (100%) | ₹5,00,000 | ₹10,00,000 – ₹5,00,000 = ₹5,00,000 | 1 | ₹5,00,000 × 1% × 1 = ₹5,000 |
Total Interest: ₹3,000 + ₹6,000 + ₹12,000 + ₹5,000 = ₹26,000
Taxpayer Opting for Presumptive Income (Section 44AD)
Due Dates:
- 15th June: Nil
- 15th September: Nil
- 15th December: Nil
- 15th March: Up to 100% of advance tax payable.
Note:
- Interest is calculated on total income tax minus TDS, less relief under Sections 90 or 91, and less tax credit under Section 115JD.
- No interest is payable if there is a shortfall due to incorrect calculations or failure to estimate capital gains or speculative income (like gambling or lottery).
Applicability and Non-Applicability of Section 234C Provisions
Applicability
Section 234C applies if the taxpayer fails to pay the advance tax by the due dates. Specifically, it is applicable when:
- The advance tax paid by the first quarter is less than 15% of the total required amount.
- The advance tax paid by the second quarter is less than 45% of the total required amount.
- The advance tax paid by the third quarter is less than 75% of the total required amount.
- The advance tax paid by the fourth quarter is less than 100% of the total required amount.
Non-Applicability
Section 234C does not apply if the underpayment of advance tax results from underestimating certain types of income, including:
- Income from lottery winnings, crossword puzzles, etc.
- Capital gains.
- Revenue from a new venture.
- More than ₹10,000 in dividend income from a domestic firm.
Exceptions to Interest Payment Under Section 234
Resident senior citizens with no income from business or profession, as well as individuals whose net tax liability is below ₹10,000, are exempt from paying advance tax.
Therefore, they are not subject to interest under Section 234C.
As the ITR filing for FY 2023-24 has begun, if you’ve paid excess advance tax and want to claim a refund, it’s important to file your ITR accurately and on time.
Frequently Asked Questions (FAQs)
How many advance tax installments are specified in the Income Tax Act 1961?
There are four scheduled installments for advance tax payments, one for each quarter of the financial year. Missing these payments will result in interest charged at 1% per month.
What interest rate applies for each month’s delay in advance tax payments under Section 234C?
Interest is charged at 1% per month for each month you delay in making the scheduled installment payments. If you make a partial payment, interest will be calculated on the remaining amount due.
How many installments must be paid during a financial year?
The income tax department requires four installments for advance tax payments throughout the financial year.
How do I calculate the interest penalty under Section 234A if I’m 4 months and 10 days late in filing my ITR?
If you miss the filing deadline, interest is payable at 1% per month or for any part of a month.
What steps can I take to avoid interest charges under Section 234C?
To avoid interest under Section 234C, ensure that advance tax payments are made before the due dates for each installment.
Is Section 234B applicable to senior citizens?
No, senior citizens without income from businesses or professions are not liable for interest under Section 234B.
Do Sections 234B and 234C apply to taxpayers under Section 44AD?
Taxpayers under the presumptive income scheme must only pay one installment of advance tax.
Does Section 234B apply to salaried employees?
Yes, Section 234B applies if the tax payable exceeds ₹10,000.
Is Section 234A relevant in the case of a tax refund?
Yes, under Section 234A, interest is levied for delays in filing the return of income, so it applies even if a refund is due.
