Bailabel Type : bailable

Description

Section 234C of the Income Tax Act, 1961 deals with the interest that is levied on the assessee for deferring the advance tax payment or for underpayment of advance tax in the respective installments during the assessment year.

Key Points of Section 234C:

1. Applicability of Section 234C:

• Section 234C applies to taxpayers who are liable to pay advance tax but fail to pay the required installments by the due dates specified under the Act.
• It specifically targets deferment of advance tax payments, which means not paying the specified advance tax installment by the due dates.
• Section 234C imposes interest for the deferred payment in each installment.

2. Due Dates for Advance Tax Installments:

Advance tax must be paid in installments as follows:

1. 15% of the total tax by June 15 (First Installment).
2. 45% of the total tax by September 15 (Second Installment).
3. 75% of the total tax by December 15 (Third Installment).
4. 100% of the total tax by March 15 (Fourth Installment).

If the assessee fails to pay the full advance tax in any of these installments or pays less than the required amount, interest under Section 234C will be charged.

3. Rate of Interest:

• Interest is charged at the rate of 1% per month or part of a month on the shortfall in the advance tax payment.
• The interest is charged on the difference between the tax paid and the required amount in each installment.
• The interest is calculated from the due date of the installment until the date of payment of the tax or until the completion of the assessment (whichever is earlier).

4. Calculation of Interest:

• Interest is calculated separately for each installment in which the advance tax has been paid less than the required amount.

  For example:

  • If you were required to pay 15% of the total tax by June 15 but only paid 10%, there will be a shortfall of 5%.
  • Similarly, if the second installment due on September 15 was not paid in full, the interest will be charged on the amount of the shortfall.

5. Period for which Interest is Charged:

• The interest under Section 234C is calculated for the period of delay or deferment in each of the four installments.
• Each month or part of a month of delay in paying the advance tax installment leads to 1% interest.

6. No Interest if the Shortfall is Within the Tolerance Limits:

• The interest under Section 234C is not charged if the shortfall in advance tax is within 10% of the required amount.
  • For example, if you are required to pay 15% of the tax by June 15, and if the actual payment is at least 90% of that amount, no interest will be charged for that installment.
  • The shortfall must be greater than 10% of the installment for the interest to be levied.

7. Examples of Shortfall Calculation:

• If the total tax payable is ?100,000:
  • First installment (due on June 15) requires 15% of ?100,000 = ?15,000.
  • If the taxpayer pays only ?12,000, the shortfall is ?3,000, and interest will be calculated at 1% per month for the delay.
  • Second installment (due on September 15) requires 45% of ?100,000 = ?45,000.
  • If only ?40,000 is paid, the shortfall is ?5,000, and interest will be charged.

8. Penal Interest and Avoidance:

• The interest charged under Section 234C is not a penalty; it is simply a financial charge for deferring or underpaying the advance tax.
• Taxpayers can avoid interest charges by paying the advance tax on time in the specified installments or ensuring the correct payment for each installment based on their estimated tax liability.

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Example to Illustrate Section 234C:

Assume the total tax liability for the year is ?50,000, and the taxpayer has the following payments and due dates:

• First installment (15% due on June 15): Required ?7,500, paid ?6,000.
  • Shortfall = ?1,500.
  • Interest is 1% per month on ?1,500 for the period of delay (from June 15 to payment date).
• Second installment (45% due on September 15): Required ?22,500, paid ?20,000.
  • Shortfall = ?2,500.
  • Interest is 1% per month on ?2,500 for the period of delay (from September 15 to payment date).

Interest Calculation:

• Interest for the First Installment: ?1,500 × 1% × (number of months of delay).
• Interest for the Second Installment: ?2,500 × 1% × (number of months of delay).

Punishment

Interest under Section 234C is not considered a penalty but is an interest for non-payment or deferment of advance tax installments.

Penalty for Underreporting or Underpayment of Tax may apply under Section 271 if there is willful tax evasion or fraud.

Penalties can also be imposed for non-compliance with tax filing deadlines under other provisions of the Income Tax Act.