Income Tax

Section 234C: Interest for Deferment of Advance Tax

Section 234C: Interest for Deferment of Advance Tax

Payment of Income Tax and the filing of income tax returns is the responsibility of every Indian citizen. It also helps in the recovery of the TDS Payments. The taxesprovide the government with a significant amount of revenue to fund infrastructure and public programmes and services. The Income Tax Department works to make citizens’ participation with advance tax payments as simple and convenient as possible. One can choose to pay it in four instalments throughout the financial year (FY). The assessee attracts a penalty charge under Section 234C upon the failure of the payment of the advance tax following the planned instalments.

Section 234c: Meaning

Section 234C of the Income Tax Act establishes the rate of interest and the circumstances for deferring advance tax payments. All the assessees, including salaried assessees, are obligated to pay advance tax every quarter of the fiscal year. However, in the failure of timely payment of the advance tax instalments, the assesse attracts a penalty as described in section 234C of the Income Tax Act.

Meaning of Advance Tax

Advance tax is a tax that is paid in instalments for the fiscal year, depending on the estimated income. According to existing regulations, assessees must pay advance tax when their income tax liability, calculated based on their anticipated earnings for the fiscal year, surpasses Rs. 10,000 after the deduction of TDS for the relevant financial year. The advance tax guarantees that assessee pay their taxes on time and avoid paying a lump at the end of the fiscal year.

Person Liable To Pay Advance Tax

Every individual having a total tax liability more than Rs. 10,000 after deduction of TDS/ TCS is liable for payment of advance tax. The following are liable to advance tax in India:

  • Companies
  • Partnership firms 
  • Association of Persons (AOP)
  • Body of Individuals (BOI)
  • Salaried employees
  • Self-employed professionals/ businesses
  • Assessee opting for presumptive tax schemes
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When paying advance tax, regular assessees and those using the presumptive taxation plan have distinct deadlines.

However, a senior citizen of India with no income falling under the “Income from Business and Profession” category is exempted from the payment of advance tax. A senior citizen in India is any individual older than 60 years old.

Criteria under Which Advance Tax Interest Is Not Payable

No interest is payable in case of any shortfall in paying the advance tax due if it is because of underestimation or failure to estimate the number of capital gains or speculative income (lottery income, gambling income, etc.). 

The assessee has fully paid the tax payable on the income mentioned above while paying the remaining instalments of advance tax due, or if no instalment is due, the assessee pays them before the end of the financial year.

Difference between Section 234B and 234C

There is a significant difference between Sections 234B and 234C of the Income Tax Act.

Section 234B imposes interest on the assessees for the failure in payment of advance tax or the payment of less than 90% of the net tax payable during the assessment year. (AY) As a result, the need to pay interest under Section 234B arises subsequent to the end of the fiscal year until the date of tax payment.

Section 234C imposes interest on assessees failing to pay their taxes on time during the fiscal year.

Due Dates for Paying Advance Tax

The income tax department expects the assessee to pay their taxes on time. Otherwise, they will be charged interest for late payment at the time of filing the returns. Advance tax is paid on the below-mentioned dates of a financial year:

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On or BeforeIn the case of all assessees other than assessees opting for presumptive income u/s 44ADAssessees opting for presumptive income u/s 44AD
15 JuneUp to 15% of advance tax payableNil
15 SeptemberUp to 15% of advance tax payableNil
15 DecemberUp to 75% of advance tax payableNil
15 MarchUp to 100% of advance tax payableUp to 100% of advance tax payable

Calculation of Interest under Section 234C

The interest on delayed payment of advance tax in case of an assessee other than the one opting for presumptive income u/s 44AD is as given below:

ParticularsRate of InterestPeriod of Interest  Amt on which interest is calculated
If Advance Tax paid on or prior to June 15 is less than 15% of the Amt*Simple interest @1% / month3 months15% of Amt* (-)tax already deposited before June 15
If Advance Tax paid on or before September 15 is less than 45% of the Amt*Simple interest @1% per month3 months45% of Amt* (-) tax already deposited before September 15
If Advance Tax paid on or before December 15 is less than 75% of the Amt*Simple interest @1% per month3 months75% of Amt * (-) tax has already been  deposited before December 15
If Advance Tax paid on or before March 15 is less than 100% of the amt*Simple interest @1% per monthNA100% of Amount* (-) tax already been  deposited before March 15

Exceptions to Paying Interest under Section 234C

If the assessee meets any of the following criteria, they are exempt from paying advance tax, and, as a result, interest under Section 234C1 isn’t assessed.

  • A resident senior citizen with no income under the ‘PGBP’ heading
  • If your net tax liability is less than Rs 10,000, no interest will be charged under Section 234C
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Conclusion

Assessee must understand Section 234C of the Income Tax Act and make payment of their Advance tax on time to avoid the penalty. In case of difficulties, the assessee should approach the concerned authorities for guidance and the waiver of penalty. Section 234C is designed to ensure the timely payment of tax by the assessees, thereby contributing towards the growth and stability of the Indian economy.

Frequently Asked Questions

What is section 234C?

Section 234C of the Income Tax Act establishes the rate of interest and the circumstances for deferring advance tax payments. All the assessees, including salaried assessees, are obligated to pay advance tax every quarter of the fiscal year. However, in the failure of timely payment of the advance tax instalments, the assesse attracts a penalty as described in section 234C of the Income Tax Act.

What is Advance Tax?

Advance tax is a tax that is paid in instalments for the fiscal year, depending on the estimated income. According to existing regulations, assessees must pay advance tax when their income tax liability, calculated based on their anticipated earnings for the fiscal year, surpasses Rs. 10,000 after the deduction of TDS for the relevant financial year. (FY) The advance tax guarantees that assessee pay their taxes on time and avoid paying a lump at the end of the fiscal year.

Who is Liable to Pay Advance Tax?

Every individual having a total tax liability is more than Rs. 10,000 after deduction of TDS/ TCS is liable for payment of advance tax. The following are liable to advance tax in India: • Companies • Partnership firms • Association of Persons (AOP) • Body of Individuals (BOI) • Salaried employees • Self-employed professionals/ businesses • Assessee opting for presumptive tax schemes

What are the criteria under which advance tax is not payable?

• No interest is payable in case of any shortfall in the payment of advance tax due if it is because of underestimation or failure to estimate the number of capital gains or speculative income (lottery income, gambling income, etc.). • The assessee has paid in full the tax payable on the income discussed above while paying the remaining instalments of advance tax due, or if no instalment is due, the taxpayer pays them before the end of the (FY) financial year.

What are the exemptions for Payment of Interest on Advance Tax?

If the assessee meets any of the following criteria, they are exempt from paying advance tax, and, as a result, interest under Section 234C isn’t assessed. • A resident senior citizen with no income under the ‘PGBP’ heading • If your net tax liability is less than Rs 10,000, no interest will be charged under Section 234C

Read Our Article: Understanding Advance Tax and Penalty Under Advance Tax

References

  1. https://en.wikipedia.org/wiki/Income_tax_in_India

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