Interest on advance tax late payment or non payment is calculated as per section 234B and 234C. Let’s see these provisions separately.

Interest on advance tax non payment u/s 234B:

Liability to pay interest u/s 234B is arisen when assessee does not pay advance tax or pay advance tax but in short amount.

Situations for interest payable Amount on which tax is payable Rate of interest Period for interest calculation
When assessee does not pay advance tax completely On assessed tax 1% p.m. or part of the month From 1st April of assessment year to the date of determination of income u/s 143 (1) or till date of regular assessment
When assessee paid advance tax but less than 90% of assessed tax On assessed tax less advance tax paid 1% p.m. or part of the month From 1st April of assessment year to the date of determination of income u/s 143 (1) or till date of regular assessment

 

Meaning of assessed tax:

assessed tax means

Tax on total income determined by section 143 (1) or regular assessement

Less

TDS/TCS

relief under section 90 or 91 on account of tax paid outside India.

relief under section 90A on account of tax paid in specific territory outside India

Tax credit claim u/s 115JAA or 115JD.

 

When tax is paid before regular assessment under section 140A for self assessement:

Sometimes assessee paid tax on self assessement under section 140A, before the date of determination of income under section 143 (1) or completion of regular assessment. In that case, interest is required to calculated as per below:

  1.  Up to the date of payment of tax under section 140A, as per table above.
  2. From the date of payment of tax under section 140A to date of payment of assessed tax, interest is required to pay on shortfall amount (assessed tax less advance tax and tax paid under section 140A).

 

Interest for deferrement of advance tax under section 234C:

We can understand calculation of interest for deferment of advance tax using following chart and example.

 

For non corporate assessee:

 

Situation Rate of interest Period of interest Amount on which interest is payable
When advance tax paid on or before September 15 is less than 30% of tax due 1% p.m. or part of the month 3 months 30% (tax due  less tax already paid on or before 15 september less TCS/TDS and other credit)
When advance tax paid on or before December 15 is less than 60% of tax due 1% p.m. or part of the month 3 months 60% ( tax due less tax already paid on or before 15 December less TDS/TCS and other credit)
When advance tax paid on or before 15 march  is less than 100% of tax due 1% p.m. or part of the month 1 month Tax due less tax already paid on or before 15 March less TDS/TCS and other credit

For corporate assessee:

 

Situation Rate of interest Period of interest Amount on which interest is payable
When advance tax paid on or before June 15 is less than 12% of tax due 1% p.m. or part of the month 3 Months 15% (tax due  less tax already paid on or before 15 June less TCS/TDS and other credit)
When advance tax paid on or before September 15 is less than 36% of tax due 1% p.m. or part of the month 3 months 45% (tax due  less tax already paid on or before 15 september less TCS/TDS and other credit)
When advance tax paid on or before December 15 is less than 75% of tax due 1% p.m. or part of the month 3 months 75% ( tax due less tax already paid on or before 15 December less TDS/TCS and other credit)
When advance tax paid on or before 15 march  is less than 100% of tax due 1% p.m. or part of the month 1 month Tax due less tax already paid on or before 15 March less TDS/TCS and other credit

 

Tax due meaning:

Tax due means tax on total income declared by assessee less TDS/TCS credit, Relief under section 90,91, 90A or 115JD.

 

 

Interest on short payment of advance tax on capital gain:

Capital gain can’t be anticipated. So how can assessee pay advance tax on capital gain? That’s why there is relief in section 234C for advance tax payment on capital gain. According to section 234 c (1), assessee is not required to pay advance tax if

  1. Shortfall of payment of advance tax is on account of failure to estimate income referred to section 2 (24 ) (ix) (gambling income, lottery income or capital gain)
  2. the assessee has paid that shortfall in next advance tax installment or before the end of financial year.

Example of  calculation of interest on advance tax:

Mr. Aman has paid following installments of advance tax for financial year 2013-14:

 

On September 15 12200
On December 15 8000
On March 15 11000
On March 28 2000

 

Aman has income from the all the heads are Rs. 8,00,000. He has TDS of Rs. 22,000. Aman has filed return for Rs. 800000. Assessment is also completed. Assessment order date is 30/9/14.

Interest u/s 234B :

Income 800000

Assessed tax = tax payable less TDS

92700 – 22000 = 70700

90% of assessed tax = 63630

Tax paid as advance tax 33200 which is less than 90% of assessed tax. So section 234B will be applicable here.

Interest on shortfall ( 70700 – 33200 = 37500) 37500* 1%* 6 (April to September) = 2250.