Section 234A, 234B and 234C (Interest on Advance Tax)

Section 234A, 234B and 234C of Income Tax Act apply for interest charged on default of payment of advance tax.

These sections encourage people to follow the provision of tax and pay it before due dates in order to be safe from interest charges.

We have explained all the detail about interest under sections 234A, 234B & 234C:

 

What is advance tax and how to compute advance tax?

Advance tax is a payment which you have to pay as you earn means you have to pay tax in advance.

Everyone is not required to pay Advance Tax.

It is required to pay only when your tax payable of that financial year is Rs. 10,000 or more.

Example:

Mr. X has tax liability of Rs. 25000 out of which TDS is deducted of Rs 20000 then in such a case tax payable is Rs. 5000 (Rs. 25000 – Rs. 20000) which is less than Rs. 10,000. So here is no requirement for payment of advance tax.

Advance tax is computed on the estimate of income in the current financial year.

Suppose, if you want to compute advance tax of financial year 2021-22 then you have to follow the following steps:

• Step 1: Estimated total income of FY 2021-22
• Step 2: Apply the tax rate applicable for that year and compute tax liability.
•  Step 3: Deduct TDS or TCS
• Step 4: Net amount is advance tax payable

If advance tax is Rs. 10,000 or more than you are required to pay Advance Tax.

 

Important points

If a resident individual of age 60 years or more does not have any income from business and profession then he is not required to pay Advance Tax.

If advance tax is not paid on time then interest may be levied under section 234C, 234B, 234A which are explained in the following paragraphs.

 

What is the due date of advance tax under section 234C?

Estimated advance tax computed must be paid quarterly before due dates otherwise interest may be levied under section 234C. 

Due dates of payment of advance tax

Quarter	Due Dates	Advance tax to be paid
1st Quarter [Apr-June]	Upto 15th of June of FY	At least 15% of advance tax payable
2nd Quarter [July-Sep]	Upto 15th of Sep. of FY	At least 45% of advance tax payable [Less already paid]
3rd Quarter [Oct-Dec]	Upto 15th of Dec. of FY	At least 75% of advance tax payable [Less already paid]
4th Quarter [Jan-Mar]	Upto 15th of March of FY	100% of advance tax payable [Less already paid]

So advance tax should be paid before the above mentioned due dates.

In case of section 44AD And 44ADA i.e. sections of presumptive income, a person is required to pay the whole amount of advance tax upto 15 March of the financial year in one installment.

Also Read: Section 269SS, 269T, and 269ST (Penalty & Limit)

 

How to calculate interest on advance tax under section 234C?

If a person defaults in advance payment of tax then interest is charged on quarterly basis.

Interest rate on advance tax under section 234C

Quarter	Interest Rate
Quarter 1 [Apr-June]	Simple interest of 1% per month or part thereof for 3 months (calculate for each quarter separately)
Quarter 2 [July-Sep]
Quarter 3 [Oct-Dec]
Quarter 4 [Jan-Mar]	Simple interest of 1% per month or part thereof for 1 month

Example:

Mr. X paid advance tax of Rs. 600000 according to the estimated income basis but later actual tax payable was found of Rs. 1000000. 

Now interest must be paid under section 234C, so, calculation of interest should be as follow:

Table: Part-1

Due Date	Actual Amount Paid Upto due date (A) (In Rs.)	Amount to be paid (B) (In Rs.)
15th June	90000 (600000 * 15%)	150000 (1000000 * 15%)
15th Sep	270000 (600000 * 45%)	450000 (1000000 * 45%)
15th Dec	450000 (600000 * 75%)	750000 (1000000 * 75%)
15th Mar	600000 (600000 * 100%)	1000000 (1000000 * 100%)

 

Part-2 (Addition column to above table)

Due Date	Default (B - A) from above table (In Rs.)	Interest under section 234C (In Rs.)
15th June	60000	1800 (60000*1%*3 month)
15th Sep	180000	5400 (180000*1%*3 month)
15th Dec	300000	9000 (300000*1%*3 month)
15th Mar	400000	4000 (400000*1%*1 month)
	Total Interest	20200

 So, total interest has to pay under section 234C = Rs. 20200

 

Important point

Person falling under section 44AD or 44ADA has to pay simple interest of 1% per month for one month.

Interest under section 234C is not applicable to the company for the first two installments (i.e. 1st quarter and 2nd quarter) if:

Advance tax paid is at least 12% of tax payable up to 15th June or 

Advance tax paid is at least 36% of tax payable upto 15 September.

Example:

In the above example, suppose it is a company, then calculation of interest in case of company is:

Quarter	Interest under Section 234C
1st Quarter	Rs.1800 (because 90000/1000000 * 100 is 9% which is less than 12% so interest is chargeable)
2nd Quarter	Rs.5400 (because 270000/1000000 * 100 is 21% which is less than 36% hence interest is chargeable)
3rd Quarter	Rs. 9000
4th Quarter	Rs. 4000

Also Read: Section 44AA: Rules & Limit for Maintenance of Books of Accounts

How to calculate interest on advance tax under section 234B?

Advance tax must be paid before 31st March of the financial year. In case advance tax to be paid is delayed after 31st March of the financial year then interest shall be paid at 1% per month or part of a month.

That interest is calculated from 1st April of assessment year up to the date of payment.

Example:

Mr. X paid advance tax of Rs. 650000 for FY 2020-21 on estimated basis but actual tax payable was of Rs 800000. Mr. X paid the balance (outstanding) amount on 15 -11 -2021.

Then interest is computed under section 234B (01-04-2021 to 15-11-2021) i.e. 8 months.

Rs. 150000 [Rs. 800000 - Rs. 650000]

Rs. 150000 * 1% * 8 month

RS. 12000

 

Point to be noted

Interest under section 234B is not chargeable if advance tax paid is at least 90% of total advance tax payable.

In above example:

Rs. 650000 / Rs.800000 * 100 is 81.25%

which is less than 90% hence interest is chargeable. If it is 90% or above then interest is not levied.

 

How to calculate interest on advance tax under section 234A?

Interest is levied under section 234A in case a person pays income tax after the last due date of filing income tax return.

Then the interest in such a case is 1 % per month or part of the month thereof.

Interest is charged from the last date of filing income tax return up to the actual date of payment.

Example:

If the last date of filing ITR of FY 2020-21 is 31-July-2021 and Mr. X paid the tax on 15-Dec-2021 therefore interest is charged for 5 months from 1-Aug-2021 to 15-Dec-2021.

Also Read: Income Tax Slab Rates: Individual, Senior Citizens (FY 2021-2022)

Summary

Section 234A, 234B, 234C are applicable on a person who defaults in making advance tax payment. In such cases interest is charged up to the date of payment.