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Unit 12: Advance Tax Planning and Tax Relief

12.2.1 Interest under Section 234C for Deferment of Payment of Tax Notes

If you don’t pay an advance tax instalment in full, you have to pay interest at 1 per cent a month
for three months on the amount that falls short of the required payment. However, in the case of
default on the last instalment (March 15), the penal interest of 1 per cent is chargeable for only a
month is shown in table 12.3:
Table 12.3: Interest under Section 234C is Liable to be Paid @ 1% Per Month

(a) Advance Tax paid on or before 15th Sept < 30% of the Tax Due on Returned Income

OR
(b) Advance Tax paid on or before 15th Dec < 60% of the Tax Due on Returned Income
OR
(c) Advance Tax paid on or before 15th Mar < Tax Due on Returned Income
OR
(d) No Tax has been paid by the Assessee

Source: http://www.rupeex.com/doc/advancetax.html

Example: Let’s say you are an individual taxpayer and are liable to pay ` 10,000 by way
of advance tax. Suppose you pay ` 9,500 in three instalments (` 3,000 on September 14, ` 2,000 on
December 15, and ` 4,500 on March 15), would you have kept to your payment schedule?
There will have been no default in respect of the fi rst instalment (` 3,000, which is 30 per cent
of ` 10,000). The second instalment amount should, however, have been ` 3,000 (60 per cent of
` 10,000, less ` 3,000 paid in the first instalment). Hence, the shortfall is ` 1,000, on which the

interest payable is ` 30 (1 per cent of ` 1,000 for three months). Since the third instalment is
` 4,500, there will have been a shortfall of ` 500, on which the interest charged would be ` 5
(1 per cent of ` 500 for a month). Thus, you end up with a penal interest of ` 35 for the year. If in
the last month, that is March, you delay payment of the last instalment by even a day, you will
have to pay interest on the entire balance of ` 5,000.
This has reference to Section 234C of Income Tax Act.

12.2.2 Consequences of Non-payment of Advance Tax

If the amount of advance tax paid is less you will have to pay penalty interest as per the below:
For Non-corporate assessee:
1. If advance tax paid in the first two instalments is less than specified, simple interest @ 1%

per month is charged on the deficit amount for a period of 3 months.
2. If the aggregate of advance tax paid is less than 90% of tax payable on 15th March penalty
of simple interest @ 1% per month is charged on the amount shortfall until the tax is paid
For Corporate assessee:

Simple interest @ of 1% is charged on the deficit amount for a term of 3 months if you have failed
to pay advance tax or if advance tax paid is less than tax due as per the above slab. For the 4th
and final instalment if the advance tax paid is less than 90% of tax payable simple interest @ 1%

per month is charged on the deficit from 1st April until the tax is fully paid.

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