Section 234C: Penalties for Late Advance Tax Payments.

Section 234C of the Income Tax Act deals with the penalty interest imposed on late payments of the advance tax.

For an easy and hassle-free tax payment experience, the Income Tax (I-T) Department has made several provisions for advance payment of tax. The I-T department has slated four instalments for every quarter of the fiscal year. In case the assessee delays advance tax payment as per the scheduled instalments, they have to pay a penalty interest for late payment of advance tax under Section 234C of the Income Tax Act, 1961. Section 234C makes it compulsory for taxpayers to pay advance tax in case the total income tax payable exceeds ₹10,000 in a particular year.

Due Dates for Advance Tax Payment

Given below are the due dates for advance tax payment by the assessees. The I-T department treats the tax paid before the 31st of March as advance tax. Failure to pay the advance tax before the stipulated time will result in a penalty being levied.

Instalment	Assessees who have opted for the presumptive taxation scheme u/s 44AD or 44ADA	Assessees except those who have opted for the presumptive taxation scheme u/s 44AD or 44AD
On or before June 15	NIL	Up till 15% advance tax
On or before September 15	NIL	Up till 45% advance tax
On or before December 15	NIL	Up till 75% advance tax
On or before March 15	Up till 100% advance tax	Up till 100% advance tax

Late Advance Tax Payment Interest

Section 234C of the Income Tax Act charges a penalty on assessees who fail to pay the stipulated portion of advance tax before the aforementioned due dates. The interest that is charged as a penalty by the I-T department is 1% of the amount that is due from the advance tax.

Interest under this section is applied on the short-paid amount of advance tax instalment. In the case of default or shortfall of advance tax payment of the 1st, 2nd or 3rd advance tax instalment, interest is applied for three months. However, for defaults of the last instalment, i.e., March 15, the interest is applied for one month only.

To get clarity and better understand how the interest is calculated, let’s take an example.

Consider that a person’s total tax liability is ₹1,00,000 for this financial year and there is no TDS. Here is how the interest will be calculated in the case of partial payments:

Dates of Payment	Tax Payable	Tax Paid	Shortfall (Cumulative)	Applicable Penalties (Cumulative)
15 June	₹15,000	₹5,000	₹10,000	1% * ₹10,000 *3 = ₹300
15 September	₹45,000	₹25,000	₹20,000	1% * ₹20,000 * 3 = ₹600
15 December	₹75,000	₹35,000	₹40,000	1% * ₹40,000 * 3 = ₹1,200
15 March	₹1,00,000	₹50,000	₹50,000	1% * ₹50,000 * 1 = ₹500

Therefore, the total interest payable will amount to ₹2,600.

Applicability/Non-applicability of Provisions of Section 234C

Advance tax penalty interest will be applicable according to the provisions of Section 234C of the Income Tax Act in case of late payment of instalments of advance tax.

However, Section 234C provisions are not applicable in the following cases:

The advance tax that is paid by the assessee on or before June 15th is not less than 15% of the payable advance tax
The advance tax that is paid by the assessee on or before September 15th is not less than 45% of the payable advance tax

The inadequacy in advance tax payment is due to the following reasons:

Income from a new venture/business
Capital gain amount
Income from winning the lottery, crossword, etc
Dividend income that is received from a domestic company exceeding ₹10 Lakhs

If the assessee meets any of the following requirements, they are exempt from advance tax payment and Section 234C is not applicable:

In case their tax liability is lesser than ₹10,000, then interest will not be levied u/s 234C
A senior citizen who has no income under the ‘Profit and Gains from Business and Professions’ head

What is the interest under Section 234C?

Under Section 234C, interest is an amount you pay as a penalty due to the delay in advance tax payment. You can use advance tax penalty calculators available online to calculate the interest.

How to avoid interest under Section 234C?

To avoid paying interest under Section 234C of the Income Tax Act, you must ensure that you remit your taxes before the due date.

Is Section 234C applicable to salaried employees?

Yes, Section 234C is applicable for salaried individuals as they need to pay advance tax in every quarter of the financial year.

How is interest calculated under Section 234C?

The interest amount is calculated using the simple interest formula under Section 234C.

What is the difference between Section 234B and 234C?

Section 234B levies interest on assessees who fail to make the advance tax payment or at least 90% of the total tax payable during the particular financial year. Due to this, the interest payment arises only after the end of the fiscal year until the tax payment date.

However, Section 234C levies interest on assessees who do not pay the advance tax payment on time.

What is the applicable interest rate on delayed advance tax payments under Section 234C?

Under Section 234C, the Income Tax department imposes an interest of 1% of the due amount from the advance tax.

Is Section 234C applicable to senior citizens?

No, Section 234C does not apply to senior citizens aged 60 or above if they have no income from business or profession. It relates to interest on defaulting advance tax payments.

What is Section 234C of the Income Tax Act?

Section 234C imposes interest for delayed payment of advance tax. If advance tax instalments are not paid on time, a 1% monthly interest is charged on the shortfall.