Advance Tax & Interest Under Section 234A/B/C

The Income-tax Act imposes numerous forms of interest for various types of delays/defaults. This article discusses the provisions of sections 234A, 234B, and 234C of the Internal Revenue Code that deal with interest charges.

• The failure to file a tax return on time
• Advance tax non-payment or underpayment
• Non-payment or underpayment of individual advance tax instalments or instalments (i.e., advance tax deferment).

What is Advance Tax? 

Advance Tax gives option of paying income tax in one lump sum at the end of the fiscal year in advance. The taxpayer must pay 15 percent advance tax by June 15th, 45 percent advance tax by September 15th, 75 percent advance tax by December 15th, and 100 percent advance tax by March 15th throughout the relevant fiscal year.

Interest for failure to file an income tax return [Section 234A]

If you don’t file your tax return on time, you’ll be charged interest under section 234A.

Provisions that are fundamental If you don’t file your tax return on time, you’ll be charged interest under Section 234A. In other words, if a taxpayer files his or her income tax return beyond the due date set forth in this section, interest will be charged.

Interest rates

If you don’t file your tax return on time, you’ll be charged interest under section 234A. The rate of interest is 1% every month or fraction of a month. Simple interest is the nature of interest. In other words, for any delay in completing the income tax return, the taxpayer is required to pay simple interest at the rate of one percent per month or part of a month.

Period for levy of Interest

Section 234A imposes interest for a fixed amount of time. Section 234A imposes interest beginning on the day after the due date for submitting the return of income and ending on the date of providing the return of income, or, if no return has been given, the date of completion of the assessment under section 234A.

A part of a month, i.e. a fraction of a month, is treated as a full month when computing the term of interest levy.

Interest-bearing amount

Section 234A charges interest on the amount of tax calculated by section 143(1), and, in the case of a regular assessment, the tax on total income as determined by advance tax, tax deducted/collected at source, relief sought under various sections such as 89/90/90A/91, and tax credit. The 115JAA/115JD section is used.

Interest for failure to pay advance tax [Section 234B]

Failure to pay advance tax can result in the imposition of interest under Section 234B.

Fundamental provisions

Interest is imposed under Section 234B in the following two situations:

•  When a taxpayer fails to pay advance tax despite the fact that he is obligated to do so; or .
•  If the taxpayer’s advance tax payment is less than 90% of the total tax due.

If the assesses expected tax due for the fiscal year is ten thousand rupees or more, advance tax must be paid by the taxpayer throughout the fiscal year, according to Section 208 of the Act.

Interest rate

Failure to pay advance tax results in a penalty of 1% each month or part of a month under Section 234B. Straightforward interest is the essence of interest. In other words, if a taxpayer fails to pay the advance tax, he or she must pay simple interest at a rate of 1% per month or fraction of a month.

Interest-bearing amount

The amount of unpaid advance tax is subject to interest under Section 234B. If you don’t pay your advance tax on time, you’ll be charged interest on the amount you didn’t pay..

Interest rate levy period

Section 234B imposes interest from the first day of the assessment year, April 1st, until the date of income determination under section 143(1), or, if a regular assessment is made, until the date of such a regular assessment.

If your income rises as a result of an assessment or re-computation, you’ll be charged interest under section 234B on the difference between the start day of the assessment year and the date of the assessment or re-computation. If an application is submitted to the Settlement Commission, interest will be charged on the differential amount from the first day of the assessment year to the date of the application, as provided in Section 234B.

In addition, if the Settlement Commission increases the income disclosed in the application, interest will be charged under section 234B on the difference between the first day of the assessment year and the date of the decision. If the person paid any tax before the assessment was completed, the following interest will be charged:

•  Interest will be calculated on any unpaid advance tax up to the date of self-assessment tax payment.
• After deducting the self-assessment tax paid by the taxpayer from the date of payment of self-assessment tax, interest will be charged on the unpaid amount of advance tax.

Interest for failure to pay advance tax installment(s) [Section 234C]

Section 234C allows for the imposition of interest if an advance tax instalment is not paid on time (s). Let us consider the provisions governing the payment of advance tax by a taxpayer before diving into the intricacies of Section 234C.

Anyone whose projected tax burden for the year exceeds Rs. 10,000 must pay his tax in advance in the form of “advance tax” by the following dates, according to Section 208:

• If the advance tax paid before June 15th is less than 12% of the advance tax due
• If the advance tax paid on or before September 15th is less than 36 percent of the advance tax due, the advance tax is not refundable.
• If the amount of advance tax paid on or before December 15th is less than 75% of the total amount due,
• If the advance tax paid on or before March 15th does not equal 100% of the advance tax due.

If the first, second, and third instalments are not paid on time, Section 234C charges interest at a rate of 1% for three months, and one month if the last instalment is not paid on time.

Final Words

When a taxpayer’s tax liability in a fiscal year exceeds Rs. 10,000, they are normally required to pay advance tax. Taxpayers who plan ahead of time may be able to pay their taxes on time. They will, however, be penalised with interest under Section 234B of the Income Tax Act if they miss or postpone making the payment. They could face penalties under sections 234A and 234C as well.