Section 234C: Penalty on Delayed Advance Tax Payment

For an easy and hassle-free tax payment experience, the Income Tax (IT) Department has made several provisions for advance payment of tax. The IT 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, then he/she will be charged a penalty interest for late payment of advance tax under Section 234C of the Income Tax Act.

Section 234C deals with the penalty interest that will be imposed in case a taxpayer fails to pay the advance tax on time. The IT department has made it compulsory for taxpayers to pay advance tax for whom the total income tax payable exceeds ₹10,000 in a particular year. Moreover, the IT department has four instalments to pay this tax amount. This makes it easier for assessees to pay it in instalments rather than in bulk in March, thus, reducing their financial burden. Section 234C charges a late penalty interest of advance tax in case of late payment of these instalments.

Advance tax is defined as the amount that is paid in advance as tax before the end of the fiscal year. It is calculated on the basis of the forecast income in the particular fiscal year. It is only applicable if the tax liability goes above ₹10,000 after TDS deduction for the particular fiscal year. 

Given below are the due dates for advance tax payment by the assessees. The IT 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.

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 IT department is 1% of the amount that is due from the advance tax.

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.

On the other hand, 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

Section 234B levies interest on assessees who fail to do 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.

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

If the assessee meets any of the requirements mentioned below, he/she is exempt from advance tax payment and Section 234C is not applicable:

• In case his/her tax liability is lesser than ₹10,000, then interest will not be levied u/s 234C of the Income Tax Act.

• A senior citizen who has no income under the “Profit and Gains from Business and Professions” head.

Interest under this section is applied on the short paid amount of advance tax instalment.

Every assessee is liable to pay a 1% per month or portion of month interest in case of non-payment or shortfall of any of the instalments of advance tax payment.

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. Whereas for payment default of the last instalment, i.e, March 15, the interest is applied for one month only.