Interest for Deferment of Advance Tax Section 234C

Interest for Deferment of Advance Tax Section 234C | Methods for Calculation of Interest by Non-Corporate Assessee

Interest for Deferment of Advance Tax Section 234C: Income Tax Department allows their taxpayer to submit their return in 4 instalments over a financial year for their convenience. Thus, it helps the taxpayer pay the taxes easily during a 12-month long financial year. However, if the taxpayer failed to return on time, there are some consequences under Section 234 C.

Under Section 234 C assessee have to pay the interest for non-payment or underpayment of advance tax. The rate of interest is 1 % per month at simple interest.

What is the Interest Rate for Late Payment Of Advance Tax?

Income Tax Department set a 1 % simple interest rate on the amount of the due tax.

The methods for calculation of interest by Non-Corporate Assessee under:-

  1. Interest is payable under Section 234 C if the advance tax paid on or before 15th Sept is less than 30 % of the tax on returned income. The period of interest is three months. The interest is payable on  30 % of tax on the returned income amount.
  2. Interest is payable under Section 234 C if the advance tax paid on or before 15th Dec is less than 60 % of the tax on returned income. The period of interest is three months. The interest is payable on  60 % of tax on the returned income amount.
  3. Interest is payable under Section 234 C if the advance tax paid on or before 15th March is less than 100 % tax on returned income. There is no period of interest. The interest is payable on 100 % of tax on the returned income amount.

Here, tax on return income stands for the taxes that are chargeable on the total income declared in the return of income granted by the assessee as reduced by the amount of:-

  1. Any tax-deductible or collectable at source as per Chapter XVII on any income subject to such deduction or collection is considered in computing such total income.
  2. Under Section 90, 90 A, 91, 115 JAA and 115 JD, any relief, deduction or tax credit is allowed.
  3. The amount of advance tax that has been paid on or before 15th Sept of the financial year.
  4. The amount of advance tax that has been paid on or before 15th Dec of the financial year.
  5. The amount of advance tax that has been paid on or before 15th March of the financial year.

Methods for Calculation of Interest by Non-Corporate Assessee

The methods for calculation of interest by Non-Corporate Assessee under:-

  1. Interest is payable under Section 234 C if the advance tax paid on or before 15th June is less than 12 % of the tax on returned income. The period of interest is three months. The interest is payable on  15 % of tax on the returned income amount.
  2. Interest is payable under Section 234 C if the advance tax paid on or before 15th Sept is less than 36 % tax on returned income. The period of interest is three months. The interest is payable on  45 % of tax on the returned income amount.
  3. Interest is payable under Section 234 C if the advance tax paid on or before 15th Dec is less than 75 % of the tax on returned income. The period of interest is three months. The interest is payable on  75 % of tax on the returned income amount.
  4. Interest is payable under Section 234 C if the advance tax paid on or before 15th March is less than 100 % tax on returned income. There is no period of interest. The interest is payable on  100 % of tax on the returned income amount.

Here, tax on return income stands for the taxes that are chargeable on the total income declared in the return of income granted by the assessee as reduced by the amount of:-

  1. Any tax-deductible or collectable at source as per Chapter XVII on any income subject to such deduction or collection is considered in computing such total income.
  2. Under Section 90, 90 A, 91, 115 JAA and 115 JD, any relief, deduction or tax credit is allowed.
  3. The amount of advance tax that has been paid on or before 15th June of the financial year.
  4. The amount of advance tax that has been paid on or before 15th Sept of the financial year.
  5. The amount of advance tax that has been paid on or before 15th Dec of the financial year.
  6. The amount of advance tax that has been paid on or before 15th March of the financial year.

What are the Situations under Which the Interest is not Payable?

You should not have to pay the interest if the deficiency in the payment of the advance tax belongs to the account of underestimate or failure estimate.

  • Speculative Income from the lottery, gambling from the reference of Section 2(24)(ix)
  • Where we can fail to calculate the total capital gains.
  • The taxpayer paid all the return in advance. Or we can say no instalment is due from the taxpayer side.

E.g.:-

Ram need to pay Rs. 200000 for your tax liability for the financial year 2020-21:-

Payment Due Date Advance Payable Tax Actual Tax Paid Deficit Penalty
15th June 50000 20000 30000 1% of 3*30000
15th Sept 80000 60000 20000 1% of 3*20000
15th Dec 130000 120000 10000 1% of 3*10000
15th March 200000 180000 20000 1% of 1*20000

The total penalty is of 900 + 600 +300 + 200 = 2000.

So Ram has to pay Rs. 2000 as a penalty.

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