[Section 234C]: Interest for Deferment of Advance Tax

Section 234C of the Income Tax Act, 1961 imposes interest for deferring advance tax payments beyond the prescribed due dates, even if 90% of the total tax liability is ultimately paid.

1. Key Provisions of Section 234C

1. When Does Interest Apply?

Interest is charged when:

• • Advance tax installments are paid lateor paid less than required amounts
  • Applies even if total advance tax paidexceeds 90% of liability by year-end

2. Applicability

• • All taxpayersliable to pay advance tax (including companies, firms, individuals)
  • Not applicableif total tax liability < ₹10,000

3. Due Dates & Minimum Payment Requirements

4. Interest Calculation

• • Rate:1% simple interest per month
  • Period:3 months for 1st-3rd installments; 1 month for final installment
  • On:Shortfall amount from required cumulative payment

5. Calculation Formula

Interest = Shortfall × 1% × No. of months

(Number of months = 3 for first 3 installments, 1 for last installment)

2. Practical Example

Taxpayer (Non-Corporate):

• Estimated tax liability: ₹1,00,000
• 1st Installment (15 Jun):Paid ₹5,000 (vs required ₹15,000)
• 2nd Installment (15 Sep):Paid ₹30,000 (total ₹35,000 vs required ₹45,000)
• 3rd Installment (15 Dec):Paid ₹30,000 (total ₹65,000 vs required ₹75,000)
• Final Installment (15 Mar):Paid ₹35,000 (total ₹1,00,000)

Interest Calculation:

1. 1st Installment Shortfall:₹10,000 × 1% × 3 = ₹300
2. 2nd Installment Shortfall:₹10,000 × 1% × 3 = ₹300
3. 3rd Installment Shortfall:₹10,000 × 1% × 3 = ₹300
4. Final Installment:No shortfall

Total Interest: ₹900 (even though full tax was paid by year-end)

3. Key Exceptions

1. No interestif shortfall due to:

• • Capital gains/lottery winnings after installment dates
  • Income from new business started after installment dates

2. Salaried taxpayers(without business income) generally exempt if TDS covers liability

4. Comparison with Section 234B

5. How to Avoid Section 234C Interest?

✔ Estimate income accurately before each instalment

✔ Pay at least minimum required % by each due date

✔ Revise estimates if income changes significantly

✔ Claim exceptions for post-dated income (capital gains etc.)