The income tax department strives to make it as easy and convenient for citizens to comply with advance tax payments. So, one has the option of paying it in 4 instalments over the financial year.
However, if you still default, there are some consequences in the form of an interest penalty. Basically, Section 234C deals with interest to be levied on defaulters of advance tax instalment payments.
Section 234A: Delay in filing Income Tax Return
All taxes should be paid before the end of a financial year. In case there is any outstanding tax, the balance should be paid and income tax returns filed on or before July 31 of every following assessment year (AY). If the tax returns are filed after this date, then the taxpayer is charged 1% simple interest every month of the outstanding tax amount. The interest is calculated from the due date of filing returns till the date the return is actually filed.
Interest under Section 234A
Delay in filing the return of income would result in a late payment interest to be levied as per Section 234A. Interest amount of 1% per month (simple interest) would be applied on the tax amount outstanding.
Example: A taxpayer has unpaid taxes that are outstanding. He has not filed his IT Returns by the due date (31st Jul). The income tax payable was ₹ 23,300 and he filed his IT returns on 8th Nov. What will be the late payment interest levied on him under Section 234A for the delayed filing of IT Return?
Actual Filed Date: 08-Nov
Delay in Filing: 3 Months and 8 days delay (Delay is calculated from the due date of 31st Jul and is rounded as 4 months)
Tax Payable: ₹ 23,300
Late Payment Interest: 1 % * ₹ 23,300 * 4 months = ₹ 932
Section 234B: Incomplete Payment of Tax
In case an individual has to pay Rs 10,000 or more as tax in a fiscal year, then advance tax is applicable. The tax dues that are paid at a specific time period, as regulated by the Income Tax Department are termed as advance taxes. Businessmen, self-employed professionals, and salaried employees are liable to pay advance tax, where tax payable amounts to Rs 10,000. Under Section 44AD, when a taxpayer opts for computing business income, which has a turnover of 8% on presumptive basis, he is exempted from paying advance tax. Senior citizens above 60 years and with no income also enjoy tax exemptions under this section.
The taxpayer should have paid the maximum amount (least 90%) of the total tax payable by the end of the financial year. Failure to pay the tax, if the amount is more than 10% of the liability, then a penalty of simple interest 1% will be charged under Section 234B.
Advance Tax means paying your tax dues based on the dates (usually quarterly) provided by the income tax department. If you don’t pay advance tax, you may be liable to pay interest under section 234B.
Interest under Section 234B
Delay or shortfall in paying advance tax as per the income tax calendar would result in late payment interest to be levied as per Section 234B. All assesses are required to pay Advance Tax (at least 90 %) where the tax payable is Rs 10,000 or more. Late Payment Interest is applicable if the tax liability is more than Rs 10,000 and the taxpayer has not paid any advance tax or if the taxpayer has paid advance tax, but advance tax paid is less than 90% of ‘assessed tax’.
Example (Not paying Advance Tax): A taxpayer has ₹ 15,400 as tax payable, but he has not paid any advance tax until 31st March. If the entire tax was paid by him 0n 3rd Oct, when he files the return of income, how much interest is he liable to pay as per Section 234B?
Actual date of paying tax: 03-Oct
Delay in Filing: 6 Months and 3 days delay (Delay is calculated from 31st Mar which is the end of FY and is rounded as 7 months)
Tax Payable: ₹ 15,400
Late Payment Interest: 1 % * ₹ 15,400 * 7 months = ₹ 1,078
Example (Shortfall in paying any Advance Tax): A taxpayer has ₹ 38,500 as Tax Payable. He has paid ₹ 20,000 towards advance tax until 31st March. If the remaining ₹ 18,500 was paid by him 0n 25th Aug, when he files the return of income, how much interest is he liable to pay as per Section 234B?
Actual date of paying tax: 25-Aug
Delay in Filing: 4 Months and 25 days delay (Delay is calculated from 31st Mar which is the end of FY and is rounded as 5 months)
Tax Payable: ₹ 38,500
Advance Tax Paid: ₹ 20,000 (which is only 51.9 % of tax payable)
Penalty to be applied for: ₹ 38,500 – ₹ 20,000 (Advance Tax that is paid already) = ₹ 18, 500
Late Payment Interest: 1 % * ₹ 18,500 * 5 months = ₹ 925
Section 243C: Delay in Periodic Payment of Tax
Income tax should be paid on time every financial year to avoid interest and penalty on late payment. Advance tax can be paid on the dates mentioned below:
- 15% of advance tax on or before June 15 in case of corporate taxpayer.
- 45% and 30% tax advance to be paid by corporate and noncorporate taxpayer respectively, on or before September 15.
- 60% and 75% of tax advance by non-corporate and corporate taxpayers should be paid on or before December 15.
- 100% tax advance by both corporate and noncorporate taxpayers should be paid on or before March 15.
Interest under Section 234C
The following table provides the details on the cut off date and the advance tax payable:
| Due Date | All Tax Payers except those who have opted for presumptive income u/s 44AD | Taxpayers opting for presumptive income u/s 44AD |
| 15th June | Upto 15 % of Advance Tax Payable | Nil |
| 15th September | Upto 45 % of Advance Tax Payable | Nil |
| 15th December | Upto 75 % of Advance Tax Payable | Nil |
| 15th March | Upto 100 % of Advance Tax Payable | Up to 100% of Advance Tax payable |
Example: A Tax Payer who has not opted for presumptive income u/s 44AD has ₹ 50,000 as Tax Payable. He has paid ₹ 2,500 on 13th June, ₹ 10,000 on 12th September, ₹5000 on 11th December and ₹ 7,500 on 10th Mar towards Advance Tax. How much interest is he liable to pay as per Section 234C because of default payment of instalments?
Tax Payable: ₹ 50,000
Detailed Calculation is as below :
| Cut-Off Date | Expected % | Expected Amount (Cumulative) | Advance Tax Paid | Advance Tax Paid (Cumulative) | Defaulted Amount (Expected Amount – Advance Tax Paid) | Interest (1%) |
| 15th Jun | 15 % | 15 % of 50,000 =₹ 7,500 | ₹ 2,500 | ₹ 2,500 | ₹ 7,500 – ₹ 2,500 = ₹ 5,000 | 1% * ₹5,000 *3 = ₹ 150 |
| 15th September | 45 % | 45 % of 50,000 =₹ 22,500 | ₹ 10,000 | ₹ 2,500 +₹ 10,000 = ₹ 12,500 | ₹ 22,500 – ₹ 12,500 = ₹ 10,000 | 1% * ₹10,000 *3 = ₹ 300 |
| 15th December | 75 % | 75 % of 50,000 =₹ 37,500 | ₹ 5,000 | ₹ 12,500 +₹ 5,000 = ₹ 17,500 | ₹ 37,500 – ₹ 17,500 = ₹ 20,000 | 1% * ₹20,000 *3 = ₹ 600 |
| 15th March | 100 % | 100 % of 50,000 =₹ 50,000 | ₹ 7,500 | ₹ 17,500 +₹ 7,500 = ₹ 25,000 | ₹ 50,000 – ₹ 25,000 = ₹ 25,000 | 1% * ₹25,000 *1 = ₹ 250 |
Late Payment Interest : ₹ 150 + ₹ 300 + ₹ 600 + ₹ 250 = ₹ 1,300
FAQs
What is late payment interest on income tax?
Late payment interest on income tax is a penalty charged by the Income Tax Department for not paying your income tax dues on time. It is calculated under Sections 234A, 234B, and 234C of the Income Tax Act, 1961.
What is Section 234A of the Income Tax Act?
Section 234A deals with interest for late filing of the income tax return. If you file your return after the due date, you will be charged interest at 1% per month or part of the month on the amount of tax remaining unpaid.