Interest U/S 234C with Calculations:
When it comes to income tax, there are various provisions that one must be aware of to avoid penalties and additional charges. One such provision is Section 234C of the Income Tax Act, 1961, which deals with interest on tax payments. In this article, we will discuss Section 234C and its provisions, along with calculations to help taxpayers understand how it works.
What is Section 234C?
Section 234C of the Income Tax Act, 1961, deals with the interest payable on the shortfall of advance tax payments. Under this section, if an individual, Hindu Undivided Family (HUF), or any other assessee liable to pay advance tax fails to pay the tax or pays less than the required amount, they will be liable to pay interest as per the provisions of this section.
What is Advance Tax?
Advance tax is a system of paying income tax in instalments throughout the year. As per the provisions of the Income Tax Act, 1961, if the estimated tax liability of an assessee for a financial year exceeds Rs. 10,000, they are required to pay advance tax in instalments. The instalments are to be paid on specific dates throughout the year, as notified by the Income Tax Department.
Calculating Interest U/S 234C
The interest under Section 234C is levied on the shortfall in the payment of advance tax. The interest is calculated on a quarterly basis and is levied at a rate of 1% per month or part thereof for each quarter. The calculation of interest u/s 234C is as follows:
First instalment (15th June) If the taxpayer has not paid any advance tax or has paid less than 15% of the tax liability, interest of 1% per month or part thereof will be levied on the tax liability from 1st April to 15th June.
Second instalment (15th September) If the taxpayer has not paid at least 45% of the tax liability by 15th September, interest of 1% per month or part thereof will be levied on the shortfall amount from 1st April to 15th September.
Third instalment (15th December) If the taxpayer has not paid at least 75% of the tax liability by 15th December, interest of 1% per month or part thereof will be levied on the shortfall amount from 1st April to 15th December.
Fourth instalment (15th March) If the taxpayer has not paid the entire tax liability by 15th March, interest of 1% per month or part thereof will be levied on the shortfall amount from 1st April to 31st March.
Let us understand the interest calculation with an example:
Mr A has an estimated tax liability of Rs. 1,00,000 for the financial year 2022-23. The due dates for advance tax payments are as follows:
15th June 2022 – Rs. 15,000
15th September 2022 – Rs. 35,000
15th December 2022 – Rs. 60,000
15th March 2023 – Rs. 1,00,000
Mr A has paid the following amounts as advance tax:
15th June 2022 – Rs. 10,000
15th September 2022 – Rs. 25,000
15th December 2022 – Rs. 50,000
Therefore, the shortfall in the payment of advance tax is as follows:
15th June 2022 – Rs. 5,000
15th September 2022 – Rs.10,000
15th December 2022 – Rs. 10,000
15th March 2023 – Rs. 40,000
So, total calculation of interest u/s 234C as follows:
1. 5000x1%x3 = Rs. 150
2. 10000x1%x3 = Rs. 300
3. 10000x1%x3 = Rs. 300
4. 40000x1%x1 = Rs. 400
So, total calculation of interest u/s Rs.1,150.
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