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Interest Imposed by the I-T Department – Section 234C

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Budget 2021 update :Taxpayers need to pay advance tax on dividend income only after the declaration or payment of dividend.
Income Tax Department strives to make it as easy and convenient for citizens to comply with advance tax payments. So, one has the option of paying it in 4 instalments over the financial year. However, if you still default, there are some consequences in the form of interest penalty. Basically, Section 234C deals with interest to be levied on defaulters of Advance Tax Instalment Payments. This is the last part in a 3-part series about Interest imposed by the IT Department. Read our previous guides on Section 234A and Section 234B.
  1. Due dates for paying Advance Tax
  2. Interest
  3. Example 

Part III: Section 234 C (Interest for Deferred Payment of Advance Tax)

section234c-300x300

1. Due dates for paying Advance Tax

The Income Tax department expects you to pay your taxes on time , otherwise you will be charged interest for late payment, at the time of filing your returns.Advance tax is paid on the following dates of a 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

  The interest for late payment is set at 1% on the amount of tax due. It is calculated from the individual cut off dates shown above, till the date of actual payment of outstanding taxes. Calculation of Interest under section 234C – In case of a  Taxpayer other than the one opting for presumptive income u/s 44AD.
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
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*Amount on which percentage of advance tax needs to be calculated = Tax on total income (-) TDS (-) relief u/s 90 or 91 (-) tax credit u/s 115JD.

Note that no interest is payable if there is any shortfall in payment of advance tax due, if it is on account of underestimation or failure to estimate amount of capital gains or speculative income (lottery income, gambling income etc).   Section 234C    
  • If it is on account of underestimation or failure to estimate amount of capital gains or speculative income (lottery income, gambling income etc).
  • The taxpayer has paid in full , the tax payable on the income mentioned above, while paying remaining installments of advance tax due, or if no installment is due, tax payer pays them before the end of the financial year.
 

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3. Example

Consider that your total tax liability for this financial year is Rs. 100,000 and  it needs to be paid in installments as explained above. Assume there is no TDS here. If you made partial payments instead, you will be liable to pay interest as per 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, ClearTax automatically calculates the interest under Section 234 for you based on the amounts you enter and the dates.

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