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Interest for Default in payment of Advance Tax instalment

(Section 234C of The Income Tax Act)

Section 234C of the Income Tax Act imposes a penal interest in case of default in payment of advance tax instalments. If the due instalments of advance tax is not paid/short paid, interest under section 234C will be levied. 
Every person whose total tax liability for an year is Rs. 10000 or more, shall pay his taxes in advance in the form of Advance Tax. Click here to know the Due Dtaes for payment of Advance tax instalments
  • Interest @1% for a month or part of a month is to be levied for default in payment of instalments of Advance Tax subject to certain conditions as per the table below.
Rules of Section 234C for default in Advance Tax instalment for All Assessees

(From AY 2017-18 (FY 2016-17) all assessees have same rules for advance tax & thus penal interest on all assessees is same
)

Due Dates Advance Tax Payable Applicable Interest

On or before 15th
June

15% of Advance Tax


1% interest leviable for 3 months if advance tax paid is less then 12% of the advance tax payable

On or before 15th September 45% of Advance Tax
1% interest leviable for 3 months if advance tax paid is less then 36% of the advance tax payable

On or before 15th December 75% of Advance Tax
1% interest leviable for 3 months if advance tax paid is less then 75% of the advance tax payable

On or before 15th March 100% of advance tax 
1% interest leviable if advance tax paid is less then 100% of the advance tax payable




Rules of Section 234C for default in Advance Tax instalment for individuals

(tax payers other then companies - applicable only till financial year 2015-16(AY 2016-17)

Due Dates Advance Tax Payable Applicable Interest
On or before 15th September 30% of advance tax
1% interest leviable for 3 months if advance tax paid is less then 30% of the advance tax payable

On or before 15th December 60% of advance tax
1% interest leviable for 3 months if advance tax paid is less then 60% of the advance tax payable

On or before 15th March 100% of advance tax 
1% interest leviable for 1 month if advance tax paid is less then 100% of the advance tax payable



Other Important Points:

  • Interest u/s 234C is not leviable if the shortfall in payment of Advance Tax instalment is due to Capital Gains or Winnings from Lottery etc. and the taxpayer pays the required amount of tax on such incomes with the next instalment & if no instalment is due till 31st March of the year.
  • The amount of tax on which penal interest is to be calculated shall be rounded off to nearest multiple of Rs.100. For example if interest is to be calculated on Rs. 9894, interest will be calculated on Rs. 9900.
  • For calculation of interest any part of month shall be treated as whole month. For example if the delay in furnishing return is of 5 months and 10 days, interest will be calculated for 6 months.
  • From the Assessment Year 2017-18 interest under section 234C shall not be chargeable in case of an assessee having income under the head "Profits and gains of business or profession" for the first time subject to certain specified conditions.
How to avoid Interest u/s 234C?
  • Salaried people may avoid this interest by declaring their other incomes to their employers. Employer will deduct due tax on such incomes as TDS. As all taxes would already have been deducted there will be no default/short payment of advance tax.
Still have doubts, don't let them bother you, just write to us at arpita@tdsmaster.com or through Contact us

Some Quick links:
How to make online payment of advance tax?
Due Dates for Advance Tax payment
Calculation of Advance Tax
Interest u/s 234A for delay in filing return
Interest u/s 234B for default in payment of Advance Tax
How to pay Self Assessment Tax













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