Section 234C of the Income Tax Act, of 1961 deals with the interest charged on the delayed payment of advance tax. Advance tax is the tax paid in advance on the estimated income for the year, and is paid in installments throughout the financial year. This section is important for taxpayers to understand, as failure to comply with its provisions can lead to hefty interest charges and penalties.
Applicability of Section 234C
Section 234C applies to all taxpayers, whether individuals, companies, or firms, who are liable to pay advance tax. It is important to note that advance tax does not apply to taxpayers who have opted for the presumptive taxation scheme under sections 44AD, 44ADA, or 44AE. In addition, senior citizens who do not have any income from business or profession are also exempt from paying advance tax.
Calculation of Interest under Section 234C
The interest under Section 234C is charged on the amount of tax paid as advance tax, which is less than the required amount. The interest is calculated every quarter, and the rate of interest is determined by the Central Board of Direct Taxes (CBDT). The current rate of interest under Section 234C is 1% per month or part thereof, for three months.
Different Scenarios of Interest Calculation under Section 234C
There are three scenarios under which interest is calculated under Section 234C:
Scenario 1: Non-payment of advance tax If a taxpayer does not pay any advance tax during the financial year, and has a tax liability of more than Rs. 10,000, then interest will be charged under Section 234C. The interest will be calculated from the due date of each installment of advance tax until the date of actual payment of tax.
Scenario 2: Shortfall in payment of advance tax If a taxpayer has paid advance tax, but the amount paid is less than 90% of the assessed tax liability, then interest will be charged under Section 234C. The interest will be calculated from the due date of each installment of advance tax until the date of actual payment of tax.
Scenario 3: Default in payment of advance tax If a taxpayer has paid advance tax, but the amount paid is less than the required amount in each installment, then interest will be charged under Section 234C. The interest will be calculated from the due date of each installment of advance tax until the date of actual payment of tax.
Consequences of Non-Compliance with Section 234C
Non-compliance with the provisions of Section 234C can lead to hefty interest charges and penalties. If a taxpayer fails to pay advance tax or pays less than the required amount, interest will be charged under Section 234C. The interest charged can be substantial, and can significantly increase the tax liability.
In addition to interest charges, non-compliance with Section 234C can also attract penalties under Section 221 of the Income Tax Act. The penalty for non-payment or short payment of advance tax is 1% per month or part thereof until the tax is paid in full.
Conclusion
In conclusion, Section 234C of the Income Tax Act, 1961 is an important provision that taxpayers need to comply with. Failure to comply with the provisions of this section can lead to hefty interest charges and penalties. Taxpayers need to ensure that they pay the correct amount of advance tax, and pay it on time, to avoid any unnecessary interest charges or penalties. It is advisable to seek professional help in case of any doubts or confusion regarding
Frequently Asked Questions:Â
Q: What is Section 234C of the Income Tax Act?
A: Section 234C of the Income Tax Act deals with the interest that is charged on taxpayers for delay in payment of advance tax.
Q: Who is liable to pay advance tax?
A: As per the Income Tax Act, if your tax liability for the financial year is more than Rs. 10,000, you are liable to pay advance tax.
Q: When is advance tax payable?
A: Advance tax is payable in installments throughout the financial year. For individuals, the due dates for payment of advance tax are September 15, December 15, and March 15.
Q: How is interest calculated under Section 234C?
A: Interest under Section 234C is calculated based on the amount of advance tax that was due but not paid on time. The interest rate is determined by the income tax department and is currently 1% per month or part of a month.
Q: What happens if I don’t pay advance tax on time?
A: If you don’t pay advance tax on time, you will be charged interest under Section 234C. The longer the delay in payment, the higher the interest will be.
Q: Can I avoid paying interest under Section 234C?
A: Yes, you can avoid paying interest under Section 234C by paying your advance tax on time. If you have underestimated your tax liability and end up paying less advance tax than you should have, you may still be liable to pay interest on the shortfall.
Q: Is the interest under Section 234C deductible from my taxable income?
A: No, the interest under Section 234C is not deductible from your taxable income. It is an additional tax liability that you must pay to the income tax department.
