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The income tax department mandates payment of advance tax for taxpayers whose total tax payable exceeds Rs 10000 in a financial year. The income tax department makes it easier for a taxpayer to pay the tax due amount in four installments. This makes it easier for the taxpayers to pay in installments and avoid the total burden in the month of March. However, where a taxpayer liable to pay advance tax makes any default in payment of each installment interest is applicable. Section 234C of Income Tax Act, 1961 provides for such interest due to deferment in payment of advance tax. 

Who is liable to pay advance tax?

Every assessee whose total tax liability is more than Rs 10000 after deduction of TDS/ TCS is liable for payment of advance tax. Here, the assessee includes companies, partnership firms, AOP/ BOI, salaried employees, self-employed professionals/ businesses, taxpayers opting for presumptive tax schemes, and so on. The due date for payment of advance tax is different for normal taxpayers and taxpayers under the presumptive taxation scheme. 

However, a resident senior citizen with no income under the head ‘Income From Business and Profession’ is exempt from advance tax. The senior citizen is more than 60 years of age

Due Date For Payment Of Advance Tax

The following are the due dates for the payment of advance tax by the taxpayers. The income tax department treats any tax paid by the assessee till 31st March as advance tax. Default in paying any of the installments will lead to interest at the time of filing an income tax return. 

InstallmentTaxpayers (excluding taxpayers who opt for presumptive taxation scheme under section 44AD or section 44ADA)Taxpayers who opt for presumptive taxation scheme under section 44AD or section 44ADA 
On or before 15th JuneUp to 15% of advance tax NIL
On or before 15th SeptemberUp to 45% of advance tax NIL
On or before 15th DecemberUp to 75% of advance tax NIL
On or before 15th MarchUp to 100% of advance tax Up to 100% of advance tax

Interest for default in payment of instalments of advance tax Section 234C 

Section 234C of the Income Tax Act,1961 levies interest if the taxpayer defaults in payment of advance tax instalments. This is the case wherein a taxpayer does not pay or pays advance tax less than the amount due under each installment. In other words, interest under section 234C of the Income Tax Act, 1961 is levied in the case of deferment of different installments of the advance tax. 

Taxpayers (excluding taxpayers who opt for presumptive taxation scheme under section 44AD or section 44ADA)

The following are the cases of deferment of different installments of the advance tax:

  1. If the advance tax paid on or before 15th June is less than 12% of advance tax payable  
  2. If the advance tax paid on or before 15th September is less than 36% of advance tax payable  
  3. If the advance tax paid on or before 15th December is less than 75% of advance tax payable  
  4. If the advance tax paid on or before 15th March is less than 100% of advance tax payable

Taxpayers who opt for presumptive taxation scheme under section 44AD or section 44ADA

In the case of taxpayers opting for a presumptive taxation scheme, the deferment provisions are different. If the advance tax paid by the assessee is less than 100% of the total advance tax payable then interest under section 234C is applicable.

Non-applicability of Section 234C of the Income Tax Act, 1961

Section 234C will not be applicable if the shortfall in payment on advance tax in any installment is due to under-estimation or failure to estimate any of the following incomes:

  1. Capital gain amount
  2. Income from winning from lotteries, crossword puzzle, etc
  3. Income from a new business
  4. Dividend income from a domestic company exceeding Rs. 10,00,000

Additionally, the assessee pays the tax due on the above-mentioned income. Further, the assessee pays the advance tax on or before the due date of the next installment or 31st March if no installment is due. 

Rate of interest Under Section 234C of Income Tax Act, 1961

Every taxpayer is liable to pay interest at the rate of 1% per month or part of the month in the case of any shortfall or non-payment of any installment of advance tax. The nature of interest is simple interest per month. 

Period of levy Rate of interest Under Section 234C of Income Tax Act, 1961

In the case of default in shortfall or default in payment of 1st, 2nd, or 3rd installment of advance tax interest is levied for 3 months. While for default in payment of the last installment i.e. 15th March installment, the interest is levied for 1 month only. 

Amount liable for interest Under Section 234C of the Income Tax Act

Interest under section 234C is levied on the short paid amount of installment of advance tax.

In a nutshell, we can conclude the entire section 234C in the following table:

Shortfall or non-payment of installmentSimple Interest leviedPeriod for which interest is leviedAmount on which interest is payable
Advance Tax paid on or before 15th June is less than 15% of the assessed amount1% per month3 months15% of assessed tax – advance tax paid on or before 15th June
Advance Tax paid on or before 15th September is less than 15% of the assessed amount1% per month3 months45% of assessed tax – advance tax paid on or before 15th September
Advance Tax paid on or before 15th December is less than 15% of the assessed amount1% per month3 months75% of assessed tax – advance tax paid on or before 15th December
Advance Tax paid on or before 15th March is less than 15% of the assessed amount1% per month1 month100% of assessed tax – advance tax paid on or before 15th March

Assessed tax means the total income tax on the taxable income minus the following:

  1. Tax deducted at source or tax collected at source
  2. Relief of tax or deduction of tax like section 89, section 90, and so on
  3. Tax credit under section 115JAA/115JD

Illustration on Interest Payable on Deferment of Advance Tax

Mr. Arun is a taxpayer who does not for presumptive taxation scheme under section 44AD or section 44ADA. His total tax liability for the financial year is Rs 50,000.

He has made the advance tax payment as shown below:

  1. On 15th June- Rs 7,500
  2. On 15th September- Rs 12,500
  3. 15th December- Rs 13,500
  4. On 15th March- Rs 8,500

The following table explains each short payment if any under each installment and the interest payable thereon.

Installment Due DateAdvance Tax Payable (Rs)Advance Tax Paid (Rs)Shortfall (Rs)Interest Calculation
On or before 15th June7500(50000 * 15%)750000
On or before 15th September22500(50000 * 45%)20000(7500 + 12500)250075(2500*1%*3 months)
On or before 15th December37500(50000 * 75%)33500(7500 + 12500 + 13500)4000120(4000*1%*3 months)
On or before 15th March50000(50000 * 100%)42000(7500 + 12500 + 13500 + 8500)800080(8000*1%*1 month)
Total275