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Interest for default in Payment of Instalment(s) of Advance Tax [Section 234C]

Section 234C provides for levy of interest for default in payment of instalment(s) of advance tax. Before getting into the detailed provisions of section 234C, lets recall the provisions relating to payment of advance tax by a taxpayer.

 

As per section 208, every person whose estimated tax liability for the year exceeds Rs.10,000, shall pay his tax in advance in the form of “advance tax” by following dates:

 

Status

By 15th

June

By 15th

September

By 15th

December

By 15th

March

Taxpayers (other than those who opted for presumptive Taxation scheme of section 44AD)

Upto 15% of advance tax

Upto 45% of

advance tax

Upto 75% of

advance tax

Upto 100%

of advance

tax

Taxpayers who opted for presumptive taxation scheme of

section 44AD

Nil

Nil

Nil

Upto 100%

of advance

tax

 

Any tax paid till 31st March will be treated as advance tax.

 

Basic provisions

Interest under section 234C is levied, if advance tax paid in any instalment(s) is less than the required amount. In other words, interest under section 234C in case of deferment of different instalments of advance tax is levied in following cases:

 

(A)       In case of taxpayers (other than those who opted for presumptive taxation scheme under section 44AD), interest shall be levied-

 

        If advance tax paid on or before 15th June is less than 12% of advance tax payable

 

       If advance tax paid on or before 15thSeptember is less than 36% of advance tax Payable

 

      If advance tax paid on or before 15thDecember is less than 75% of advance tax payable

 

       If advance tax paid on or before 15thMarch is less than 100% of advance tax Payable

 

(B)       In case of taxpayers who opted for presumptive taxation scheme of Section 44AD, interest shall be levied if advance tax paid on or before 15th March is less than 100% of advance tax payable.

 

No levy of interest if shortfall in payment of advance tax is due to capital gains or winning from lottery, etc.

Interest under section 234C is not levied, if, the shortfall in payment of advance tax is due to failure to estimate the amount of capital gains or income referred to in section 2(24)(ix) (i.e. winning from lotteries, crossword puzzle, etc.) or income from a new business and the taxpayer pays the required advance tax on such income as a part of immediate following instalments or till 31st March, if no instalment is pending.

 

Rate of interest

Interest under section 234C for default in payment of instalment(s) of advance tax is

charged at 1% per month or part of a month. The nature of interest is simple interest. In other words, the taxpayer is liable to pay simple interest @ 1% per month or part of a month for short payment/ non-payment of individual instalment(s) of advance tax.

 

Period of levy of interest

Interest under section 234C is levied for a period of 3 months, in case of short fall in payment of 1st, 2nd and 3rd instalment and for 1 month, in case of short fall in payment of last instalment.

 

Amount liable for interest

Interest under section 234C is levied on the short paid amount of instalment(s) of advance tax.

 

Illustration

Mr. Khushal is running a garments shop. Tax Liability of Mr. Khushal is Rs 45,500. He

has paid advance tax as given below:

 

Rs. 8,000 on 15th June,

Rs. 11,000 on 15th September,

Rs. 12,000 on 15th December,

Rs. 14,500 on 15th March.

 

Mr. Khushal has not opted for presumptive taxation scheme of section 44AD. Will he be liable to pay interest under section 234C, if yes, then how much?

**

Every person whose estimated tax liability for the year exceeds Rs. 10,000, shall pay his tax in advance in the form of “advance tax” by the following dates:

 

Status

By 15th June

By 15th September

By 15th December

By 15th March

Taxpayers (other than those who opted for presumptive taxation scheme of section 44AD)

Upto 15% of advance tax

Upto 45% of advance tax

Upto 75% of advance tax

Upto 100% of advance tax

Taxpayers who opted for Presumptive taxation scheme of section 44AD

Nil

Nil

Nil

Upto 100%

of advance

tax

Any tax paid till 31st March will be treated as advance tax.

 

Considering the above dates, the advance tax liability of Mr. Khushal at different installments will be as follows:

 

1)         In first installment: Not less than 15% of tax payable should be paid by 15thJune. The tax liability is Rs. 45,500 and 15% of 45,500 amounts to Rs. 6,825. Hence, he should pay Rs. 6,825 by 15thJune. He has paid Rs. 8,000, hence, there is no short payment in case of first installment.

 

2)         In second installment: Not less than 45% of tax payable should be paid by 15thSeptember. Tax liability is Rs. 45,500 and 45% of 45,500 amounts to Rs. 20,475. Hence, he should pay Rs. 20,475 by 15th September. He has paid Rs.8,000 on 15th June and Rs. 11,000 on 15th September (i.e. total of Rs. 19,000 is paid till 15thSeptember). There is short payment of Rs. 1,475 (i.e. Rs. 20,475 – Rs 19,000).

 

Though there is short payment of Rs. 1,475 but Mr. Khushal will not be liable to pay interest under section 234C because he has paid minimum of 36% of advance tax payable by 15th September. He has paid Rs. 19,000 till 15th September and 36% of 45,500 amounts to Rs. 16,380. Hence, no interest shall be levied in case of deferment of second installment.

 

3)         In third installment: Not less than 75% of tax payable should be paid by 15th December. Tax liability is Rs. 45,500 and 75% of 45,500 amounts to Rs. 34,125. Hence, he should pay Rs. 34,125 by 15th December. He has paid Rs. 8,000 on 15th June, Rs. 11,000 on 15th September and Rs. 12,000 on 15th December (i.e. total of Rs. 31,000 is paid till 15thDecember). There is a short payment of Rs. 3,125 (i.e. Rs. 34,125 – Rs 31,000). Hence, he will be liable to pay interest under section 234C on account of short fall of Rs. 3,125 (*).

 

4)         In last installment: 100% of tax payable should be paid by 15th March. The total tax liability of Rs. 45,500 is paid by Mr. Khushal by 15th March (i.e. 8,000 on 15th June, Rs. 11,000 on15th September, Rs. 12,000 on 15th December and Rs 14,500 on 15th March). Hence, there is no short payment in case of last installment. Thus, Mr. Khushal will not be liable to pay interest under section 234C in case of last instalment.

 

(*)There is a short fall of Rs. 3,125 in case of third installment (computation already discussed). Due to short fall in case of third installment, interest under section 234C will be levied. Interest will be levied at 1% per month or part of the month on the short paid amount of Rs. 3,100 (i.e. Rs. 3,125 rounded off to Rs. 3,100 as per Rule 119A). Interest will be levied for a period of 3 months. In other words, interest will be levied on Rs.3,100 at 1% per month for 3 months. Interest under section 234C will come to Rs. 93.

 
 

 
 
 
 
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