The income tax department seeks to make it as easy and convenient for citizens to pay for prepayments. Thus, you have the option to pay it in 4 instalments during the fiscal year. However, if you still default, there are some consequences in the form of interest payments. Basically, section 234C deals with interest that should be paid on Defaulters Advance Tax Payment. This is the final part of a 3-part series of risks put by the IT department.
Part III: Section 234 C (Interest for Deferred Payment of Advance Tax)
1. Due dates for paying advance tax
The income tax department assumes that you pay your taxes on time, otherwise, there will be a fee for late payment at the time your application is submitted. The tax is paid in the following financial year:
| On or Before | In case of all taxpayers other than taxpayer opting for presumptive income u/s 44AD | Taxpayers opting for presumptive income u/s 44AD |
| 15th June | Up to 15% of advance tax payable | NIL |
| 15th September | Up to 45% of advance tax payable | NIL |
| 15th December | Up to 75% of advance tax payable | NIL |
| 15th March | Up to 100% of advance tax payable | Up to 100% of advance tax payable |
2. Interest
Interest due to delay is set at 1% of the tax amount. It is calculated from the individual cut dates shown above, until the date of actual payment of outstanding taxes. Calculation of interest according to section 234C – If a taxpayer other than the person who chooses predictable income u/s 44 AD
| Rate of Interest | Period of Interest | Amount on which Interest is calculated | |
| If Advance Tax paid on or before June 15 is less than 15% of the Amount* | Simple interest @1% per month | 3 months | 15% of Amount* (-)tax already deposited before June 15 |
| If Advance Tax paid on or before September 15 is less than 45% of the Amount* | Simple interest @1% per month | 3 months | 45% of Amount* (-) tax already deposited before September 15 |
| If Advance Tax paid on or before December 15 is less than 75% of the Amount* | Simple interest @1% per month | 3 months | 75% of Amount* (-) tax already deposited before December 15 |
| If Advance Tax paid on or before March 15 is less than 100% of the Amount* | Simple interest @1% per month | – | 100% of Amount* (-) tax already deposited before March 15 |
3. Example
Consider that your total tax liability for this financial year is Rs. 100,000 and has to be paid in instalments as described above. Let’s assume that no TDS is here. If you have made payments instead, you are responsible for paying interest according to the last column in the table below:
| Payment Dates | Advance Tax payable | Total Advance Tax paid | Shortfall (Cumulative) | Penalties (Cumulative) |
| 15th June | 15,000 | 5,000 | 10,000 | @1% * 3*10,000 = 300 |
| 15th September | 45,000 | 25,000 | 20,000 | @1% * 3 *20,000=600 |
| 15th December | 75,000 | 35,000 | 40,000 | @1% * 3 *40,000=1200 |
| 15th March | 1,00,000 | 50,000 | 50,000 | 1% * 1 *50,000=500 |
Total interest payable is Rs 2600. Remember that automatically calculates interest according to Article 234 for you based on the amount you enter and dates.
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