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- Will you have to pay Advance Tax? Let’s find out:
- Difference between Section 234B & 234C
- Avoid Penalties by Paying Advance Interest on Time
- Exceptions Under Section 234C:
- Advance Tax Non-Payment Interest under Section 234B of Income Tax Act:
- Advance Tax Late Payment Interest under Section 234C of Income Tax Act:
- FAQS - FREQUENTLY ASKED QUESTIONS
Did you know that paying advance tax isn't just for businesses and self-employed individuals? It's a common misconception that can lead to penalty interest for taxpayers who fail to pay advance tax on time. Advance tax is actually a mandatory payment required when your income is TDS-free and your total tax liability for a financial year exceeds Rs 10,000. It's the income tax that needs to be paid within the same year in which you earned the income. You need to make these payments in installments according to the deadlines set by the IT department.
Will you have to pay Advance Tax? Let’s find out:
1. If your total tax liability for the year is Rs 10,000 or more, you need to pay advance tax. This applies to everyone, whether you are a salaried employee, a freelancer, or a business owner.2. For senior citizens (60 years or older), only those with business income need to pay it. If you are a senior citizen and you don't have a business, you are exempt from paying advance tax.3. For businesses and self-employed/independent professionals under the presumptive taxation schemes of Sections 44ADA . They must pay the entire advance tax in one instalment by either March 15 or March 31. Also Read: Who Should Pay Advance Tax?
Advance Tax Deadlines:
| Instalment | Deadline | Percentage of Tax Liability |
| 1st instalment | before 15th June | 15% of advance tax |
| 2nd instalment | before 15th September | 45% of the remaining advance tax |
| 3rd instalment | before 15th December | 75% of the remaining advance tax |
| 4th instalment | before 15th March | 100% of the remaining advance tax |
If you fail to pay the advance tax before these deadlines, then the IT department will charge interest on the late payment. The interests are calculated under Section 234B and Section 234C of Income Tax Act
Difference between Section 234B & 234C
If advance tax is not paid or if it is paid at a rate that is less than 90% of the net tax due for the assessment year, the taxpayers will be subject to interest under Section 234B. As a result, the need to pay interest under Section 234B arises after the end of the Financial Year until the date of tax payment. However, in the scenario that tax payment is delayed within the Financial Year, taxpayers are subject to interest under Section 234C.
Avoid Penalties by Paying Advance Interest on Time
As per Section 234B of the IT Act, when a taxpayer is unable to pay 90% of the payable taxes prior to the end of the financial year, he/she needs to pay penalty interest at 1% rate on tax dues.Section 234C deals with non-payment of advance tax within four-yearly deadlines. Penalty interest of 1% is applicable when taxpayer fails to pay advance tax.The four deadlines and the associated tax amount that one has to pay are listed below:
- 15th June-15% of tax liability
- 15th September- 45% tax liability
- 15th December- 75% tax liability
- 15th March- 100% tax liability
Also Read: What is Advance Tax and How to Calculate Advance Tax?
Exceptions Under Section 234C:
If you meet any of the following requirements, you are exempt from paying advance tax and hence are not subject to section 234C interest charges.1. Senior resident who does not fall within the category of "PGBP" ("Profits and Gains of Business or Profession)2. Interest under section 234C won't be assessed if your net tax liability is less than INR 10,000.Other than these two categories, paying the advance interest on time as deemed by the IT department will help you in avoiding penalties .
Advance Tax Non-Payment Interest under Section 234B of Income Tax Act:
If you fail to pay at least 90% of your total advance tax liability before the end of the financial year, a penalty interest on advance tax, interest u/s 234B, will be charged under Section 234B. In such cases, a penalty interest of 1% per month is charged on the amount due. This interest is calculated from the due date of paying advance tax until the actual date of payment. To calculate the penalty interest, taxpayers can make use of the 234B interest calculator. This advance tax interest calculation is important to understand to ensure timely payment and avoid penalties.Additionally, if a taxpayer receives an excess refund, they must return the extra amount or pay a penalty interest of 0.5% per month on the excess refund. Also Read: How to Calculate Capital Gains Tax on Sale of Property/Land?
Advance Tax Late Payment Interest under Section 234C of Income Tax Act:
Paying advance tax on time is really important to avoid interest u/s 234C charged under Section 234C of Income Tax Act. It deals with the interest penalty for late payment of advance tax instalments within specific deadlines.The penalty is calculated at a rate of 1% of the tax amount for each month or part thereof that you are delayed in making the payment. The calculation of interest u/s 234C under Section 234C of Income Tax Act starts from the due date until the actual date of payment. For the first three instalments, interest u/s 234C is levied for three months in case of default or shortfall. For the last instalment due on March 15, the interest on advance tax is applied for one month only.
Advance tax interest calculation for late payment:
| Interest u/s 234C Calculation Criteria | Interest Rate and Duration | Taxable Amount |
| If Advance Tax paid before June 15 is below 15% of the tax liability | 1% per month for 3 months | 15% of the remaining tax liability after deducting the tax paid before June 15 |
| If Advance Tax paid before September 15 is below 45% of the tax liability | 1% per month for 3 months | 45% of the remaining tax liability after deducting the tax paid before September 15 |
| If Advance Tax paid before December 15 is below 75% of the tax liability | 1% per month for 3 months | 75% of the remaining tax liability after deducting the tax paid before December 15 |
| If Advance Tax paid before March 15 is below 100% of the tax liability | 1% per month for 1 month | 100% of the remaining tax liability after deducting the tax paid before March 15 |
The idea behind interest u/s 234C under Section 234C of Income Tax Act is to encourage people to pay their advance tax timely. Also Read: Direct Tax and Indirect Tax: Difference, Types, Benefits Advance tax allows you to divide your tax payments into smaller, more manageable amounts. It's important to stay on top of your taxes and steer clear of interest u/s 234B and interest u/s 234C, which are under Section 234B and Section 234C of Income Tax Act, respectively. Avoid any interest on advance tax and unwanted financial headaches by staying informed and becoming a responsible taxpayer.Ready to make the most of your money? Start your tax planning journey now!
FAQS - FREQUENTLY ASKED QUESTIONS
What is the penalty for not paying advance tax on time under Section 234C ?
The penalty for not paying advance tax is charged under interest u/s 234C of Section 234C of Income Tax Act. It is calculated at a rate of 1% per month or part thereof on the amount of tax due.
Is the 234B interest calculator applicable to all taxpayers ?
Yes, advance tax interest calculation can be done by 234B interest calculator for all taxpayers who have not paid at least 90% of their tax liability before the end of the financial year. Many financial websites provide a 234B interest calculator.
Are there any exemptions to the advance tax late payment interest under Section 234C of Income Tax Act ?
No, there are no specific exemptions to the advance tax late payment interest under Section 234C of Income Tax Act. It is applicable to all eligible taxpayers who fail to pay the required advance tax instalments on time.
How to avoid interest penalty under Section 234B ?
To avoid interest under Section 234B, ensure timely payment of your advance tax instalments. Utilising an advance tax interest calculator can help in planning your payments efficiently.
Is it possible to rectify the incomplete payment of advance tax to avoid penalty ?
Unfortunately, paying the incomplete advance tax payment after the due date does not eliminate the penalty liability.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
