Section 234C of ITA, 1961 : Section 234C: Interest For Deferment Of Advance Tax

Explanation using Example

Let's say Mr. Sharma is a salaried employee and has some income from a rental property. For the financial year 2022-2023, his estimated tax liability is ₹1,00,000. According to the advance tax payment schedule, he should pay at least 15% (₹15,000) by the 15th of June, 45% (₹45,000) by the 15th of September, 75% (₹75,000) by the 15th of December, and 100% (₹1,00,000) by the 15th of March.

However, Mr. Sharma pays ₹10,000 by June 15, which is ₹5,000 less than what is required. He pays ₹40,000 by September 15, which is ₹5,000 less than the cumulative required amount by that date. By December 15, he pays another ₹25,000, making his total advance tax paid ₹75,000, which is equal to the required amount by that date. Finally, he pays the remaining ₹25,000 by March 15.

Under Section 234C, Mr. Sharma will be liable to pay interest for the underpayment of advance tax:

• For the shortfall of ₹5,000 until September, he will pay interest at 1% per month for 3 months (June to August).
• For the additional shortfall of ₹5,000 from September to December, he will pay interest at 1% per month for 3 months (September to November).
• Since he paid the cumulative required amount by December 15, there is no further interest for the December quarter.
• He paid the full amount by March 15, so there is no shortfall for the March quarter.

In total, Mr. Sharma will pay interest on ₹5,000 for 6 months (₹300) and on another ₹5,000 for 3 months (₹150), totaling ₹450 as interest under Section 234C for the financial year 2022-2023.