Advance Tax & Interest under Section 234A/B/C

Advance tax means income tax should be paid in advance instead of lump sum payment at year end. Every person whose estimated tax liability for the year is Rs. 10,000 or more, shall pay his tax in advance, in the form of “advance tax”.

Person not liable to pay advance tax

As discussed above, every person whose estimated tax liability for the year is Rs. 10,000 or more is liable to pay advance tax. However, a resident senior citizen (i.e., an individual of the age of 60 years or above during the relevant financial year) not having any income from business or profession is not liable to pay advance tax. 

Due dates for payment of advance tax

Advance tax is to be paid in different instalments. The due dates for payment of different instalments of advance tax are as follows:

In case forgotten to pay or file taxes within the due dates, then need to pay the penalty interest. There are various types of interests under Section 234.

Section 234A: For defaults in filing Income Tax Return

Interest under section 234A is levied for delay in filing the return of income. Interest is levied at 1% per month or part of a month. This interest is calculated from the due date to the date of actually filing the income tax return.

Section 234B: Interest for defaults in payment of advance tax

This interest levied in two cases: 

i)  If the Assessee was liable to pay advance tax, but failed to deposit that. 

ii) If the amount deposited was less than 90% of the tax to be deposited. 

In both the above cases, assessee will be levied a Simple Interest @ 1% per month or part of the month. Please remember, in case the advance tax deposited was more than 90% of the total tax, then no interest will be charged. This interest is chargeable from 1st April of the Assessment Year.

Section 234C: Payment of Advance tax not in time or Interest for deferment of advance tax

If an assessee who is liable to pay advance tax (other than an assessee who declares profits and gains in accordance with the provisions of section 44AD(1) or section 44ADA(1)) fails to pay such tax or, the advance tax paid by such assessee on its current income on or before the dates specified in the table below is less than the specified percentage of tax due on returned income, then simple interest @1% per month for the period specified in the table on the amount of tax due will be charged

Note – However, if the advance tax paid by the assessee on the current income, on or before 15th June or 15th September, is not less than 12% or 36% of the tax due on the returned income, respectively, then, the assessee shall not be liable to pay any interest on the amount of the shortfall on those dates.

Assessee who declares profits and gains in accordance with the provisions of section 44AD(1) or section 44ADA(1)

In above situation if Assessee is liable to pay advance tax under section 208 has failed to pay such tax or the advance tax paid by the assessee on its current income on or before 15th March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest @1% on the amount of the shortfall from the tax due on the returned income.

Note - An assessee who is liable to pay advance tax of less than 10,000 will not be saddled with interest under sections 234B and 234C for defaults in payment of advance tax. However, the consequences under section 234A regarding interest for belated filing of return would be attracted. Also, since a resident senior citizen (i.e., an individual of the age of 60 years or above during the relevant financial year) not having any income from business or profession is not liable to pay advance tax. Hence interest under section 234B and 234C for defaults in payment of advance tax is also not applicable.

Non-applicability of interest under section 234C in certain cases

Interest under section 234C shall not be leviable in respect of any shortfall in payment of tax due on returned income, where such shortfall is on account of under-estimation of or failure to estimate –

• the amount of capital gains
• income of nature referred to in section 2(24)(ix) i.e., winnings from lotteries, crossword puzzles etc.
• income under the head “Profits and gains of business or profession” in cases where the income accrues or arises under the said head for the first time.