The 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 an interest penalty. Basically, Section 234C deals with interest to be levied on defaulters of advance tax instalment payments.
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 taxpayers 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|
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.
Section 234B imposes interest on taxpayers who fail to pay advance tax or pay less than 90% of the net tax payable during the assessment year. As a result, the need to pay interest under Section 234B arises after the end of the fiscal year until the date of tax payment.
Section 234C imposes interest on taxpayers who fail to pay their taxes on time during the fiscal year.
The interest on delayed payment of advance tax in case of a taxpayer other than the one opting for presumptive income u/s 44AD is as below:
|Particulars||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|
Consider that your total tax liability for this financial year is Rs.100,000 and it needs to be paid in instalments 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|
The total interest payable is Rs 2,600.
If you meet any of the following criteria, you are exempt from paying advance tax and, as a result, interest under Section 234C is not assessed.
Remember, ClearTax automatically calculates the interest under Section 234 for you based on the amounts you enter and the dates.
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