Interest for deferment of advance tax [Section 234C] under Scheme of Mandatory Interest :

•  In the case of companies: It has been provided that the shortfall for the purpose of charging interest for deferment of advance tax, in the case of

companies, which are liable to pay advance tax shall be the difference between:

(i) 15% of the tax due on the returned income and the advance tax paid by the company on or before 15th day of June;

(ii) 45% of the tax due on the returned income and the advance tax paid by the company on or before 15th day of September;

(iii) 75% of the tax due on the returned income and the advance tax paid by the company on or before 15th day of December.

It has also been provided that where the advance tax paid by the company on or before the 15th day of June is not less than 12% of the tax due on the returned income and the advance tax paid on or before the 15th day of September is not less than 36% of the tax due on the returned income, then the companies will not be liable to pay any interest on the amount of the shortfalls on the aforesaid dates.

•  In the case of any other assessees: The shortfall for the purpose of charging interest for deferment of advance tax shall be the difference between:

(i) 30% of the tax due on the returned income and the advance tax paid on or before 15th day of September.

(ii) 60% of the tax due on the returned income and the advance tax paid on or before 15th day of December.

•  Enlarging the scope of levy of interest for deferment of advance tax: The whole amount of the advance tax is required to be paid on or before 15th

March during the financial year. The proviso to section 211(1), however, provides that any amount paid by way of advance tax on or before 31st March, is also to be treated as advance tax paid during the financial year. This proviso was inserted as certain High Courts had held that payment made after the 15th March during the financial year would not cease to be payment of advance tax. There is no penal provision in the law to enforce payment of the last installment of advance tax by 15th March. The aforesaid proviso and the absence of a penal provision have generated a tendency among the assessees to make payment of advance tax only towards the last day of the financial year.

Section 234C(1), therefore, provides that where the whole amount of advance tax paid by an assessee on or before 15th March in the financial year is less than the tax due on the returned income, the assessee is liable to pay simple interest at the rate of 1% per month or part of the month on the amount of the shortfall from the tax due on the returned income.

An assessee is required to pay advance tax in specified installments on his estimated total income including capital gains and income from winnings from lotteries, horse races etc. covered by section 2(24)(ix). No interest will be levied under section 234C in respect of any shortfall in payment of advance tax due on returned income if the shortfall is on account of under estimation or failure to estimate the amount of capital gains or income under section 2(24) (ix) and the assessee has paid the whole amount of the tax payable in respect of the income as part of the installment of advance tax which is immediately due.

These provisions shall apply even in cases where no advance tax has been paid by the assessee who is liable to pay such tax during the financial year.

“Tax due on the returned income” means the tax chargeable on the total income declared in the return of income furnished by the assessee for the assessment year immediately following the financial year in which the advance tax is paid or payable, as reduced by the amount of –

(i) any tax deductible or collectible at source on any income which is taken into account for calculating the total income.

(ii) any relief of tax allowed under section 90 or 90A;

(iii) any deduction of tax allowed under section 91;

(iv) any tax credit allowed to be set-off in accordance with the provisions of section 115JAA or section 115JD.

•  Payment of advance tax relatable to capital gain, etc. to be allowed in the remaining installments : Under section 234C penal interest is not charged on

account of underestimate or failure to estimate either the amount of capital gain or of income from winnings from lottery, horse races, etc., referred to section 2(24)(ix) if the assessee pays the whole of the tax payable in respect of such income, as part of the installment of advance tax which is immediately due after such income is earned or by 31st March if no such installment is due.

This requirement of paying the whole of the tax was causing hardship as the entire tax laid to be paid on a short notice. In many cases, even the sale proceeds of the capital asset were not received before the advance tax payment became due. Section 234C allows the assessees to pay the tax in relation to capital gain or to income from winnings from lottery, horse races, etc., as part of the remaining installments of advance tax which are due in the financial year and if no installment is due then before 31st March of the previous year.