In the previous article we looked at how and why interest is charged under section 234B. Where your return has an interest under section 234B, you will also see an interest charged under section 234C. Let's understand this interest in detail.
What is interest under section 234C?
Advance tax is required to be paid in instalments, usually as a certain per cent of the total tax, and must be paid on specified dates as per this schedule - 30 per cent of the advance tax must be paid by 15th September, 60 per cent of advance tax must be paid by 15th December and 100 per cent of your tax liability must be paid before 15th March. Do note that this schedule of payment is for individuals and corporates have to follow a separate schedule.
This requires that you estimate your annual tax dues as closely as possible and pay the advance tax due on the basis listed above. In the course of the year its likely your estimation of total income and tax thereon changes and you have to revise your advance tax estimate in the second or third instalment. If this happens automatically your previous advance tax payments will fall short and you'll be liable to pay interest on the previous instalments.
In summary, interest under section 234C is charged in your tax return when
You have not paid advance tax
Or
You have underestimated instalments of advance tax
Estimating total income which includes capital gains may be slightly tricky, since it's hard to estimate your gains accurately. Fortunately, there is a small relief from this interest levy in such a case; it is not charged when advance tax payment is short - due to underestimation or not estimating and including capital gains or certain income (such as lottery income or gambling income).
And the taxpayer has paid full tax on such income with the remaining instalment or if no instalment is due, it has been paid before the end of the financial year.
How is 234C interest calculated?
Interest is charged at the rate of 1 per cent simple interest for the period of delay for each instalment on the amount that is short paid. Fractions of hundreds are ignored and days are rounded off to a month. Here is how it is calculated.
Interest on first instalment
This interest is applicable when advance tax paid on or before 15th September is less than 30 per cent of (a-b)
Interest calculation = 30 per cent (a-b)-c x 3 months x 1 per cent
a is total tax on income in the return.
b is sum of (TDS + relief claimed under section 90 or 90A or 91 + tax credit under section 115JD)
c is advance tax paid on or before September 15
Interest on second instalment
This interest is applicable when advance tax paid on or before 15th December is less than 60 per cent of (a-b)
Interest calculation = 60 per cent (a-b)-d x 3 months x 1 per cent
a is total tax on income in the return.
b is sum of (TDS + relief claimed under section 90 or 90A or 91 + tax credit under section 115JD)
d is advance tax paid on or before December 15
Interest on third instalment
This interest is applicable when advance tax paid on or before 15th March is less than 100 per cent of (a-b)
Interest calculation = 100 per cent (a-b)-e x 1 per cent
a is total tax on income in the return.
b is sum of (TDS + relief claimed under section 90 or 90A or 91 + tax credit under section 115JD)
e is advance tax paid on or before March 15
Let's understand by way of an example
Abhishek had a total tax payable of Rs 333,564 of which Rs 253,280 had already been deducted at source (TDS). Abhishek made the following payments towards advance tax Rs 11,000 on 15th September and Rs 29,000 on 15th March.
Abhishek did not pay his full tax liability before 15th March, here's the interest calculation under section 234C for Abhishek.
First Instalment
Rs 333,564 - Rs 253,280 = Rs 80,200. (fraction of hundred has to be ignored)
30 per cent of Rs 80,200 = Rs 24,000 whereas advance tax paid is Rs 11,000 before 15th September
Therefore interest under section 234C = 30per cent ( Rs 333,564 - Rs 253,280) - Rs 11,000 x 1 per cent x 3 months = Rs 390
Second Instalment
Rs 333,564 - Rs 253,280 = Rs 80,200. (fraction of hundred has to be ignored)
60 per cent of Rs 80,200 = Rs 48,100 whereas advance tax paid is Rs 11,000 before 15th December
Therefore interest under section 234C = 60 per cent ( Rs 333,564 - Rs 253,280) - Rs 11,000 x 1 per cent x 3 months = Rs 1113
Third Instalment
Rs 333,564 - Rs 253,280 = Rs 80,200. (fraction of hundred has to be ignored)
100 per cent of Rs 80,200 = Rs 80,200 whereas advance tax paid is Rs 40,000 (Rs 11,000 + 29,000) before 15th March
Therefore interest under section 234C = 100 %( Rs 333,564 - Rs 253,280) - Rs 40,000 x 1 per cent = Rs 403
Total Interest charged under section 234C = Rs 390 + Rs 1113 + Rs 403 = Rs 1906
Therefore Abhishek has to pay an interest of Rs 1,906 under section 234C along with his tax dues.
Disclaimer: All information in this article has been provided by Cleartax.in and NDTV Profit is not responsible for the accuracy and completeness of the same.
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