There are two types of interest leviable for non payment of advance tax:
- Interest u/s 234B (Applicable when advance tax paid is less than 90% of total tax during the year): Interest u/s 234B is applicable where no advance tax was paid during the Financial year or advance tax paid was less than 90% of the total assessed. Interest shall be paid @1% per month or part of month of such amount which was less than total advance tax and it shall be liable for 1st April of the next financial year and will be liable to be paid till the date total tax is paid by assessee or till the time total tax is determined u/s 143(1) or under regular assessment (it shall include assessment made for the first u/s 147 or section 153A) and tax paid by assessee falls short of tax determined above.
Assessed Tax shall be tax determined u/s 143(1) or under regular assessment and it shall be reduced by TDS or TCS credit available with assessee or relief u/s 89 (i.e. relief for advance salary or arrears of salary) or relief u/s 90, 90A and 91 (i.e. relief from double taxation and credit of foreign tax paid) or credit of MAT or AMT (u/s 115JAA or 115JD respectively)
Credit shall also be provided of self assessment tax paid u/s 140A of the Income tax act while calculating interest u/s 234B.
Where an application is made before settlement commission interest u/s 234B shall be calculated from the 1st April of the relevant assessment year till the date application for settlement commission is submitted. If in order of such settlement commission tax is increased interest shall be calculated on such increased amount from the 1st April of the relevant assessment year till the date of such order.
Where income of assessee is increased by way of reassessment or recomputation u/s 147 or 153A as compared to income computed u/s 143(1) then interest shall be payable on such increased tax from 1st April of relevant assessment year till the date of order u/s 147 or 153A.
Where any income is increased or decreased by order u/s 154 (rectification) or 155 or 250 (CIT(A) order), 254 (ITAT order), 260 (High Court order), 262 (Supreme court order) and 263 & 264 (revision by CIT) interest on such increased or decreased tax shall be applied accordingly.
- Interest u/s 234C (Applicable when installment of advance tax are not fully paid): Interest u/s 234C shall be paid @1% for a month or part of month if:
For Normal Tax payers who does not pay advance tax:
|Amount of total tax
|Interest for months
|15% of Tax due on returned income
|45% of Tax due on returned income
|75% of Tax due on returned income
|100% of Tax due on returned income
However above interest for first two installment shall not be applicable if assessee pays atleast 12% and 36% tax for installment of 15th June and 15th September respectively.
For people filing return under presumptive taxation i.e. u/s 44AD and 44ADA:
The person declaring income u/s 44AD(1) and 44ADA(1) can pay 100% advance tax before 15th March and same themselves from 234C interest. However if they don’t pay advance tax till then, then the person needs to pay interest @1% for 1 month if the advance tax paid by such assessee is less than tax on returned income.
Provided that nothing contained in this section shall apply for an installment if the shortfall in payment of advance tax is due to failure to estimate or shortfall due to:
- Capital gain income
- Income u/s 2(24)(ix) i.e. income on winning and lottery
- Income from business or profession and such income has arisen for the first time in case of assessee.
- Income u/s 115BBDA (i.e. income from dividend of domestic companies.
However the above provision will be applicable if the assessee makes full payment of tax in remaining installment or till 31st March.
For the above section tax due on returned income shall mean tax chargeable on income declared by the assessee in his return of income filed for the relevant assessment year as reduced by TDS or TCS credit available with assessee or relief u/s 89 (i.e. relief for advance salary or arrears of salary) or relief u/s 90, 90A and 91 (i.e. relief from double taxation and credit of foreign tax paid) or credit of MAT or AMT (u/s 115JAA or 115JD respectively).
Note: If you go through the above provision properly you will come to know that section 234C charges interest for the period starting from June to March (i.e. interest on June to August for first installment, September to November for second installment, December to February for third installment and for March in case of fourth installment) of the financial year and 234B charges interest for period after that and no interest is charged for the period of April and may of relevant Financial Year.
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