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:
- Up to the date of payment of tax under section 140A, as per table above.
- 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
- 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)
- 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.
There is demand raised by IT deptt. for AY 2008-09. In case there was a calculation mistake on my part in calculating the self assessment tax and I want to pay, I guess I have to pay interest on the short payment? How can I calculate the interest for the short amount to check, if demand raised by IT department is correct. I have been disagreeing to their demand and have been requesting for computation statment from them but have not received any reply