Interest for Default in Payment of Advance Tax (Section 234B)

Section 243B: Section 234B provides for levy of interest for default in payment of advance tax. The interest under section 234B will be levied on the assessee for two reasons (i) when the taxpayer has failed to pay advance tax (ii) when the advance tax paid by the taxpayer is less than 90% of assessed tax/calculated tax.  Advance Tax calculated on estimated income should be nearest. But if there is a short payment of more than 10% or non-payment or late payment of advance tax, interest shall be payable on the amount of shortfall. Advance tax is only payable when the tax liability during the year is 10,000 or more. 

Quick Summary About Section 234B

What is Section 234B  Levy of interest for default in payment of advance tax
Conditions for Section 234B (1) Failed to pay advance tax completely or  (2) Advance tax payment less than 90% of assessed tax
When Advance Tax is Payable When the tax liability is Rs.10,000 or more
Rate of Interest 1% per month
Amount Liable for Interest on the amount of unpaid advance tax
Period of Levy of Interest From the first day of the assessment year i.e. from 1st April till the date of determination of income u/s 143 (1) or when a regular assessment is made, then till the date of such a regular assessment.

Interest for Deferment of Advance tax u/s 234C

Advance tax is said to have been deferred if any of the instalments are not paid or are paid less than the specified. In case of deferment of advance tax, simple interest shall be payable as under. [Section 234C]

First of all, we all should know the dates to pay advance tax payment. So that we can calculate interest under section 234C for the default or shortfall of advance tax payment.

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 or
section 44ADA)
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 or
section 44ADA
Nil Nil Nil Upto 100% of advance tax

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

Interest under section 234C is levied, if the 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 the following cases:

(A) In case of taxpayers (other than those who opted for presumptive taxation scheme under section 44AD or section 44ADA), 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 15th September is less than 36% of advance tax
    payable
  • If advance tax paid on or before 15th December is less than 75% of advance tax
    payable
  • If advance tax paid on or before 15th March is less than 100% of advance tax
    payable

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

Rate of Interest u/s 234C

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.

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

Points to Keep in Mind Before Calculating Advance Tax Interest

1) Interest u/s shall be payable if the assessee deposits the entire tax by the 3rd instalment.

2) If the advance tax is less than Rs.10,000 interest u/s 234C shall not be payable.  Check am I liable to pay advance tax?

3) To calculate interest on shortfall/non-payment/ deferment of advance tax ignore any fraction of Rs.100.

4) if there is a shortfall of tax by underestimate of any capital gains tax or winning from lotteries, crossword puzzles, races etc. then no interest u/s 234C will be applicable.

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