Section 234C charges interest when advance tax is not paid according to the required instalment schedule. It can apply even when the taxpayer ultimately pays the full tax by the end of the financial year.

Advance-tax Instalments

Advance tax is generally payable when the tax liability for the year is ₹10,000 or more after reducing eligible TDS and TCS.

Interest Rate and Test

Interest is charged at 1% per month on the instalment shortfall:

• For the first three instalments, interest is generally charged for three months.
• For the 15 March instalment, interest is generally charged for one month.
• For the June and September instalments, statutory tolerance applies: interest is triggered where payment is below 12% and 36% respectively, although the scheduled targets are 15% and 45%.

Example

Assume total advance tax payable is ₹1,00,000 and the taxpayer pays cumulatively:

• ₹5,000 by 15 June
• ₹30,000 by 15 September
• ₹75,000 by 15 December
• ₹1,00,000 by 15 March

June: Shortfall from 15% target is ₹10,000. Interest is ₹10,000 × 1% × 3 = ₹300.

September: Shortfall from 45% target is ₹15,000. Interest is ₹15,000 × 1% × 3 = ₹450.

No shortfall remains for December or March. Total section 234C interest is ₹750.

Relief for Certain Unpredictable Income

Interest may not apply to the shortfall attributable to specified income that could not reasonably be estimated in advance, provided the related tax is paid in the remaining instalments or by the end of the financial year, as applicable. The categories include:

• Capital gains.
• Lottery, gambling and similar winnings.
• Income from a new business or profession arising for the first time during the year.
• Dividend income, subject to statutory conditions.

Section 234B and 234C Can Both Apply

Section 234C deals with delayed instalments during the year. Section 234B deals with the overall year-end shortfall where advance tax paid is below 90% of assessed tax. The same taxpayer may therefore incur interest under both sections.

Payment and Reporting

1. Compute estimated annual income and tax after TDS/TCS.
2. Pay each instalment through the e-Pay Tax service using the correct year and advance-tax payment type.
3. Retain challan details and report them in the return.
4. Recompute tax before each later instalment when income changes.

Income-tax Act, 2025 Transition

FY 2025-26 and AY 2026-27 remain governed by section 234C of the Income-tax Act, 1961. For tax year 2026-27, section 425 of the Income-tax Act, 2025 applies. The instalment dates, percentages and interest framework continue substantially unchanged.

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