Under Section 234C of the Income Tax Act, taxpayers are generally required to pay advance tax in instalments. However, the first proviso to Section 234C(1) provides relaxation for certain types of income where estimating tax liability in advance is difficult, such as:
- Capital gains(short-term or long-term)
- Casual income(lottery, gambling, crossword puzzles, etc.)
- Dividend income(introduced in Budget 2021)
- New business income(if income under “Profits & Gains of Business or Profession” arises for the first time)
Key Exemptions & Conditions
- No Interest if Shortfall is Due to Unpredictable Income
- If the taxpayer could not estimatecapital gains, dividends, or casual income in advance, no interest u/s 234C is charged, provided:
- The tax on such income is paid in the next immediate instalment(if due).
- If no further instalments remain, the tax must be paid by 31st Marchof the financial year.
- If the taxpayer could not estimatecapital gains, dividends, or casual income in advance, no interest u/s 234C is charged, provided:
- Example Scenario
- Asells a property in December 2024, earning ₹10 lakhs (LTCG).
- Since this was unpredictable, he missesthe June/Sept instalments.
- He must pay full tax on LTCG in the December instalment(or by 31st March if no instalment is left).
- No interest u/s 234Capplies if paid on time .
- Dividend Income Relaxation (Post-2021 Amendment)
- Previously, dividends were taxable in the hands of investors, and advance tax applied.
- After Budget 2021, dividend incomewas included in the exemption list (but deemed dividends u/s 2(22)(e) are not exempt).
When Does Interest Still Apply?
- If the taxpayer fails to paythe tax on capital gains/casual income in the next available instalment, interest u/s 234C applies from the original due date.
- Example: If capital gains arise in Septemberbut tax is paid only in March, interest applies for the December & March shortfall.
Comparison with Regular Advance Tax Rules
| ASPECT | REGULAR INCOME | CAPITAL GAINS/CASUAL INCOME |
| Advance Tax Required? | Yes (4 instalments) | Only if predictable; else, pay in next instalment |
| Interest u/s 234C | Yes (if shortfall) | Exempt if paid in next instalment |
| Due Dates | Jun 15, Sept 15, Dec 15, Mar 15 | Flexible (next due date after income arises) |
