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Interest Imposed under Section 234C of the Income Tax Act

Updated: Jan 5


Section 234C of the Income Tax Act: Advance Tax and Interest Calculations

Income tax laws in India are designed to ensure the timely collection of taxes to fund various government initiatives. Section 234C of the Income Tax Act plays a crucial role in this regard, particularly concerning Advance tax payments. In this blog, we will delve into the intricacies of Section 234C, explore the concept of advance tax, and understand how interest is charged under this section.

 

Table of Content

 

What is 234C of the Income Tax Act?

Section 234C of the Income Tax Act 1961 deals with the charging of interest for default in the payment of advance tax. It aims to ensure that taxpayers pay their taxes in installments throughout the financial year, preventing the last-minute burden on the taxpayer and facilitating a steady inflow of revenue for the government.


What is Advance Tax?

Advance tax is the system of paying income tax in installments instead of a lump sum at the end of the financial year. It is applicable to all taxpayers, including individuals, businesses, and professionals, whose total tax liability for the year exceeds Rs. 10,000. Advance tax payments are made in specified installments during the financial year, with the final installment due before the end of the financial year.


Installments and Due Date  of Advance Tax Payments

The installment dates for advance tax payments in India were as follows:


Table of Installments and Due Date  of Advance Tax Payments

When Does Interest on Advance Tax Not Accrue?

Interest on the shortfall in advance tax payment is not applicable if the deficiency arises due to the underestimation or failure to estimate the amount of capital gains or speculative income (such as lottery or gambling income). 

The taxpayer is exempt from interest if they have fully paid the tax liability associated with the mentioned income types while settling the remaining installments of advance tax or, if no installments are due, by paying them before the conclusion of the financial year.

How is interest charged under Section 234C?

When taxpayers fail to make timely payments for the scheduled advance tax installments set by the Income Tax Department, they become liable to pay interest under Section 234C. This interest is levied based on the prescribed percentages of the assessed tax for each installment period.


The taxpayer is obligated to pay interest in the following scenarios:

  1. If the advance tax paid is less than 12% of the assessed tax before 15th June.

  2. If the advance tax paid is less than 36% of the assessed tax before 15th September.

  3. If the advance tax paid is less than 75% of the assessed tax before 15th December.