Received an income tax notice for interest under Sections 234B & 234C? Know if it really applies

Receiving a tax notice asking you to pay additional interest can understandably be confusing, especially when the additional tax itself is relatively small. If you have received a notice levying interest under Sections 234B and 234C, the first thing to check is whether you were actually liable to pay advance tax and, if so, whether there was a shortfall or delay in any of the prescribed instalments.

Today's Q&A explains such details in response to a query by a reader.

**Question: I have received a notice for additional tax payment from the Income Tax Department. According to the notice, I need to pay interest u/s 234(B) and 234(C). How is the interest amount calculated? Although the additional tax amount is less than ₹1500, I feel it shouldn't be applicable in my case, as the shortfall amount was less than 10% of the total tax liability. **

The advance tax has to be paid in 4 instalments in the ratio of 15%, 30%, 30% and 25% on 15 th June, 15 th September, 15 th December and 15 th March respectively of the financial year. Shortfall or default in payment of one instalment has to be made good in the next instalments.

Under Section 234B of the Income Tax Act, 1961, which is applicable till financial year 2025-2026 a taxpayer has to pay interest @ 1% for one month or part of a month from the 1st April of following the year for which the advance tax is payable till the date of payment of tax.

This is not applicable in case the advance tax paid by the taxpayer is not less than 90% of the total tax payable. So in case the shortfall in payment of advance tax is 10% or lower of the overall tax liability, the interest under section 234B is not leviable.

Likewise, under Section 23C interest is payable for deferment of advance tax during the year in which the advance tax is payable. In case you fail to pay advance tax for one instalment even by one-day interest for three months is levied @ 1% on the amount of instalment or shortfall in the instalment.

Since I do not have your exact numbers, I cannot comment on whether the interest under Section 234B and 234C has been corrected calculated. However, in case your shortfall for payment of advance tax does not exceed 10% of the overall tax liability and thus interest under Section 234B cannot be levied and in case your overall advance tax liability is lower than Rs 10,000 or the respective instalment for advance tax have been correctly paid and therefore interest under section 234C cannot be levied and you feel that the calculation of interest under Section 234B and 234C is erroneous, you can file an application under Section 154 for rectification of mistake apparent from the records online.

Disclaimer: The views and opinions expressed above are those of respective experts/commentators and do not reflect the views of Upstox. The above Q&A is only for informational purposes and should not be considered investment or tax advice from Upstox. Please consult a tax expert for your complex tax problems.