Section 234C – Interest for default in payment of instalment
A simple overview of Income Tax Section 234C
In this post, we will see the provision of section 234C, which deals with Interest for default in payment of instalment(s).
Let’s look at each section in more detail:
Interest for default in payment of instalment(S) of Advance Tax (section 234C)
Due dates for paying advance tax
The following are the advance tax payment due dates for various types of taxpayers:
- Advance Tax Due Dates for Individuals and Corporations
| Due Date of Instalment | Amount of Advance Tax Payable |
| On or before 15th June | 15% of Advance Tax |
| On or before 15th September | 45% of Advance Tax minus the previous instalment |
| On or before 15th December | 75% of Advance Tax the previous instalment |
| On or before 15th March | 100 % of Advance Tax the previous instalment |
- Advance Tax Due Dates for Small Businesses That Have Opted for the Presumptive Taxation Scheme
Such business taxpayers must pay the total amount of their advance tax on or before March 31st of each year. Taxes should be estimated at 6% or 8% of business receipts for the given year, depending on the receipt form.
Note :
- In case of taxpayers (other than those who opted for presumptive taxation scheme under section 44AD or section 44ADA), Interest shall be levied :
- If the advance tax paid on or before June 15th is less than 12% of the advance tax payable
- Also, If the advance tax paid on or before September 15th is less than 36% of the advance tax payable
- If the advance tax paid on or before December 15th is less than 75% of the advance tax payable
- The advance tax paid on or before March 15th is less than 100% of the advance tax payable
- In the case of taxpayers who opted for the presumptive taxation scheme of Section 44AD or Section 44ADA, Interest shall be levied if the advance tax paid on or before March 15th is less than 100% of the advance tax payable.
Basic Provisions
If the advance tax paid in any instalment(s) is less than the required amount, interest is charged under Section 234C. In other words, interest under section 234C in case of delay of separate advance tax instalments will be calculated.
Rate of Interest under Section 234C
Interest under section 234C for default in payment of instalment(s) of advance tax is charged at 1% per month. In other words, the taxpayer is liable to pay simple interest @ 1% per month for short payment/ non-payment of individual instalment(s) of advance tax.
Period of Levy of Interest
Section 234C charges interest for 3 months if the 1st, 2nd, and 3rd instalments are not paid on time, and for 1 month if the last instalment is not paid on time.
Amount Liable for interest
Interest under section 234C is levied on the short paid amount of instalment(s) of advance tax.
Illustration
Mr. Khushal is running a garments shop. Mr. Khushal’s tax liability is Rs 45,500. He has paid the advance tax as given below:
- Rs.8,000 on June 15th,
- Rs.11,000 on September 15th,
- Rs.12,000 on December 15th,
- Rs.14,500 on March 15th.
Mr Khushal has not opted for the presumptive taxation scheme of section 44AD. Will he be liable to pay Interest under section 234C? If yes, then how much?
Considering the advance tax due dates, the advance tax liability of Mr Khushal at different instalments will be as follows:
- In the first instalment: Not less than 15% of the tax payable should be paid by June 15th. The tax liability is Rs. 45,500, and 15% of 45,500 amounts to Rs. 6,825. Hence, he should pay Rs. 6,825 by 15th June. He has paid Rs. 8,000. Hence, there is no short payment in the case of the first instalment.
- In the second installment: Not less than 45% of tax payable should be paid by September 15th. Tax liability is Rs. 45,500, and 45% of 45,500 amounts to Rs. 20,475. Hence, he should pay Rs. 20,475 by 15th September. He paid Rs. 8,000 on June 15th, and Rs. 11,000 on September 15th, i.e., a total of Rs. 19,000 is paid till September 15th. Hence, there is a short payment of Rs. 1,475, i.e. Rs. 20,475 – Rs 19,000.
- Though there is a short payment of Rs. 1,475, Mr Khushal will not be liable to pay Interest under section 234C because he has paid the minimum of 36% of advance tax payable on September 15th. He has paid Rs. 19,000 till September 15th, and 36% of 45,500 amounts to Rs. 16,380. Hence, no interest shall be levied in case of deferment of the second instalment.
- In the third instalment, Not less than 75% of the tax payable should be paid by December 15th. Tax liability is Rs. 45,500, and 75% of 45,500 amounts to Rs. 34,125. Hence, he should pay Rs. 34,125 by 15th December. He paid Rs. 8,000 on June 15th, Rs. 11,000 on September 15th, and Rs. 12,000 on December 15th, i.e., a total of Rs. 31,000 is paid till December 15th. There is a short payment of Rs. 3,125, i.e. Rs. 34,125 – Rs 31,000. Hence, he will be liable to pay Interest under section 234C on account of a shortfall of Rs. 3,125 (*).
- (*) Due to the shortfall, Interest under section 234C will be levied. Interest will be levied at 1% per month on the short-paid amount of Rs. 3,100 (i.e. Rs. 3,125 rounded off to Rs. 3,100 as per Rule 119A). Interest will be levied for a period of 3 months. In other words, Interest will be levied on Rs. 3,100 at 1% per month for three months. Interest under section 234C will come to Rs. 93.
- In the last instalment, 100% of the tax payable should be paid by March 15th. The total tax liability of Rs. 45,500 is paid by Mr Khushal by March 15th, i.e. 8,000 on June 15th, Rs. 11,000 on September 15th, Rs. 12,000 on December 15th and Rs 14,500 on March 15th. Hence, there is no short payment for the last instalment. Thus, Mr Khushal will not be liable to pay Interest under section 234C in the case of the last instalment.
This concludes our post. If you have any questions or comments, please leave them in the comment section below.
FAQ
1. Is 234B relevant to older citizens?
Ans: No, older persons who do not have income from enterprises or professions are not liable for Interest under section 234B.
2. Are 234b and 234c apply to 44ad?
Ans: Taxpayers under the presumed plan only need to pay one instalment of advance tax.
3. Is 234b applicable to salaried employees?
Ans: Section 234B applies to the assessee if the tax payable exceeds Rs. 10,000/-.
4. Is 234a applicable in the case of refunds?
Ans: Section 234A levies Interest for failure to file an income tax return on time. As a result, Section 234A applies to refunds as well.
5. How many instalments are due in one financial year?
Ans: The income tax agency sets four instalments for each quarter of the fiscal year to pay the advance tax for that fiscal year.
