CHAPTER XVII - COLLECTION AND RECOVERY OF TAX | F.—INTEREST CHARGEABLE IN CERTAIN CASES
CHAPTER XVII - COLLECTION AND RECOVERY OF TAX | F.—INTEREST CHARGEABLE IN CERTAIN CASES
Section 234C — Interest for Deferment of Advance Tax
Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise
Status: Live; inserted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1989.
Finance Act, 2026: Not amended by the Finance Act, 2026 (the new section 234-I is a Part G fee).
Mechanism: Simple interest @ 1% p.m. on shortfall in prescribed advance-tax instalments, computed on the tax due on the returned income; tolerance and unanticipated-income provisos apply.
Litigation profile: Well litigated — returned-income base; capital-gains / first-time-income proviso; MAT application.
A. COMMENTARY
1. Place in the scheme
Section 234C charges interest for deferment of advance tax — that is, for shortfall in the prescribed instalments of advance tax during the financial year, as opposed to the overall year-end shortfall caught by section 234B. The two operate together: a taxpayer who underpays an instalment suffers 234C for that quarter, and if the cumulative position still falls short of ninety per cent of assessed tax, 234B follows. Inserted by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1 April 1989, section 234C makes the instalment discipline of sections 208-211 financially enforceable.
2. The instalment grid and the base
For a non-presumptive assessee, sub-section (1)(a) prescribes cumulative thresholds — 15 per cent by 15 June, 45 per cent by 15 September, 75 per cent by 15 December and 100 per cent by 15 March — and charges one per cent per month for three months on the shortfall at each of the first three dates, and one per cent for one month on the 15 March shortfall. A tolerance proviso shields the first two instalments if at least 12 per cent and 36 per cent respectively are paid. For a presumptive assessee under section 44AD(1) or 44ADA(1), sub-section (1)(b) requires the entire advance tax by 15 March. Crucially, the base throughout is the "tax due on the returned income" — the tax on the income declared in the return, not the assessed income — as Explanation 1 defines and the courts have consistently held. This makes 234C narrower than 234B in its base.
3. The unanticipated-income proviso
The first proviso to sub-section (1) excludes from the charge any shortfall attributable to under-estimate or failure to estimate (a) capital gains, (b) winnings of the nature in section 2(24)(ix), (c) income under "Profits and gains of business or profession" arising under that head for the first time, and (d) dividend income — provided the assessee pays the whole tax on such income in the remaining instalments, or by 31 March where no instalment is then due. The rationale is that a taxpayer cannot be expected to estimate, at the June or September instalment date, income that had not by then accrued. The practitioner should document the date of accrual of such income to bring the case within the proviso; the Tribunal regularly deletes 234C where capital gains arose only in the fourth quarter and tax was paid with the final instalment.
4. Mandatory nature and MAT
Section 234C shares the mandatory character of its companions — Anjum M.H. Ghaswala (2002) 252 ITR 1 — so relief lies only through the CBDT's section 119 order. It applies to companies taxed on book profits under the minimum alternate tax: Joint CIT v. Rolta India Ltd. (2011) 330 ITR 470 holds that advance tax is payable on MAT income and 234C follows on instalment default. Because the base is the returned income, no 234C arises where the return itself shows the tax fully discharged through the prescribed instalments, even if a higher figure is later assessed.
5. Finance Act, 2026
The Finance Act, 2026 does not amend section 234C or any provision of Part F. The instalment scheme, the tolerance provisos and the unanticipated-income carve-out continue unchanged. The new section 234-I inserted by the Finance Act, 2026 is a fee on revised returns in Part G and has no bearing on the deferment interest in section 234C.
B. STATUTORY TEXT (verbatim)
Reproduced verbatim from the Income-tax Act, 1961 (as amended up to and including the Finance Act, 2025; unaffected by the Finance Act, 2026). Section 234C, Part F, Chapter XVII.
Interest for deferment of advance tax.
234C. (1) Where in any financial year,—
(a) an assessee, other than the assessee referred to in clause (b), who is liable to pay advance tax under section 208 has failed to pay such tax or—
(i) the advance tax paid by such assessee on its current income on or before the 15th day of June is less than fifteen per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of September is less than forty-five per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December is less than seventy-five per cent of the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent per month for a period of three months on the amount of the shortfall from fifteen per cent or forty-five per cent or seventy-five per cent, as the case may be, of the tax due on the returned income;
(ii) the advance tax paid by the assessee on the current income on or before the 15th day of March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent on the amount of the shortfall from the tax due on the returned income:
Provided that if the advance tax paid by the assessee on the current income, on or before the 15th day of June or the 15th day of September, is not less than twelve per cent or, as the case may be, thirty-six per cent of the tax due on the returned income, then, the assessee shall not be liable to pay any interest on the amount of the shortfall on those dates;
(b) an assessee who declares profits and gains in accordance with the provisions of sub-section (1) of section 44AD or sub-section (1) of section 44ADA, as the case may be who is liable to pay advance tax under section 208 has failed to pay such tax or the advance tax paid by the assessee on its current income on or before the 15th day of March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent on the amount of the shortfall from the tax due on the returned income:
Provided that nothing contained in this sub-section shall apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of under-estimate or failure to estimate—
(a) the amount of capital gains; or
(b) income of the nature referred to in sub-clause (ix) of clause (24) of section 2; or
(c) income under the head "Profits and gains of business or profession" in cases where the income accrues or arises under the said head for the first time; or
(d) the amount of dividend income, and the assessee has paid the whole of the amount of tax payable in respect of income referred to in clause
(a) or clause (b) or clause (c) or clause (d), as the case may be, had such income been a part of the total income, as part of the remaining instalments of advance tax which are due or where no such instalments are due, by the 31st day of March of the financial year:
Provided further that nothing contained in this sub-section shall apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of increase in the rate of surcharge under section 2 of the Finance Act, 2000 (10 of 2000), as amended by the Taxation Laws (Amendment) Act, 2000 (1 of 2001), and the assessee has paid the amount of shortfall, on or before the 15th day of March, 2001 in respect of the instalment of advance tax due on the 15th day of June, 2000, the 15th day of September, 2000 and the 15th day of December, 2000 :
Provided also that nothing contained in this sub-section shall apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of increase in the rate of surcharge under section 2 of the Finance Act, 2000 (10 of 2000) as amended by the Taxation Laws (Amendment) Act, 2001 (4 of 2001) and the assessee has paid the amount of shortfall on or before the 15th day of March, 2001 in respect of the instalment of advance tax due on the 15th day of June, 2000, the 15th day of September, 2000 and 15th day of December, 2000.
Explanation 1.—In this section, "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 commencing on the 1st day of April 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 in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income;
(ii) any relief of tax allowed under section 90 on account of tax paid in a country outside India;
(iii) any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section;
(iv) any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and
(v) any tax credit allowed to be set off in accordance with the provisions of section 115JAA or section 115JD.
Explanation 2.—For the purposes of this sub-section, the term "dividend" shall have the meaning assigned to it in clause (22) of section 2, but shall not include sub-clause (e) thereof.
(2) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years.
C. AUTHORITIES
Arranged by issue: the mandatory character and MAT application; the "returned income" base; and the unanticipated-income proviso (capital gains and similar receipts). Citations web-verified.
(i) Mandatory levy; application to MAT companies
CIT v. Anjum M.H. Ghaswala (Supreme Court, Constitution Bench)
Citation: (2002) 252 ITR 1 (SC) [5 Judges].
Holding: Levy of interest under sections 234A/234B/234C is mandatory; only relief permitted by a CBDT section 119 circular is available, and even the Settlement Commission cannot waive it. Anchors the mandatory character of section 234C.
Joint CIT v. Rolta India Ltd. (Supreme Court)
Citation: (2011) 330 ITR 470 (SC).
Holding: Advance tax is payable on income computed under the MAT provisions (sections 115JA/115JB); on default in the instalments, interest under section 234C (and 234B) is chargeable. Section 115JB is a self-contained code attracting the advance-tax machinery.
Brij Lal v. CIT (Supreme Court, Constitution Bench)
Citation: (2010) 328 ITR 477 (SC) [5 Judges].
Holding: Sections 234A/234B/234C apply in Settlement Commission proceedings; interest runs up to the section 245D(1) order and cannot be recomputed under section 154. Fixes the terminal point and limits of the 234C charge in settlement.
(ii) Base is the tax due on the RETURNED income
CIT v. Smt. Premlata Jalani (Rajasthan High Court)
Citation: (2003) 264 ITR 744 (Raj).
Holding: Interest under section 234C is computed on the tax due on the returned income, and the proviso operates so that income (capital gains) accruing after an instalment due date is excluded from the advance-tax requirement for the earlier instalments. Leading High Court authority on both the returned-income base and the proviso.
Sumitomo Corporation v. DCIT (ITAT, Delhi)
Citation: ITAT Delhi Bench (AY 2013-14).
Holding: Section 234C is to be levied on the tax due on the returned income, contrasting the express words of section 234C with the "assessed tax" base of section 234B; the Assessing Officer was directed to restrict the levy accordingly. Persuasive Tribunal authority on the returned-vs-assessed distinction.
EY Global Delivery Services India LLP v. DCIT (ITAT, Bangalore)
Citation: ITAT Bangalore Bench.
Holding: Following the Mumbai Bench in Aishwarya K. Rai v. DCIT, the Tribunal held that section 234C interest must be charged on the returned income, not the assessed income, and directed re-computation. Reinforces the returned-income rule.
(iii) Unanticipated-income proviso — capital gains, first-time business income
Hamilton Industries (P) Ltd. v. ITO (ITAT, Mumbai)
Citation: ITA No. 218/Mum/2022.
Holding: Applying the proviso to section 234C, where capital-gains income arose only in the fourth quarter and the advance tax thereon was paid on 15/31 March, no interest under section 234C is chargeable for the shortfall in the earlier instalments; the interest deleted. Direct Tribunal illustration of the capital-gains carve-out.
CIT v. Smt. Premlata Jalani (Rajasthan High Court) — applied
Citation: (2003) 264 ITR 744 (Raj).
Holding: Where capital gains accrued after 15 March, 234C could be charged only for the residual one-month period on tax payable by 31 March; the proviso prevents loading the earlier instalments with tax on income not yet arisen. (Cross-listed for the proviso point.)
CHAPTER XVII - COLLECTION AND RECOVERY OF TAX | F.—INTEREST CHARGEABLE IN CERTAIN CASES
Section 234C — Interest for Deferment of Advance Tax
Case Laws & Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026) — bharattax.co Treatise
Status: Live; inserted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1989.
Finance Act, 2026: Not amended by the Finance Act, 2026 (the new section 234-I is a Part G fee).
Mechanism: Simple interest @ 1% p.m. on shortfall in prescribed advance-tax instalments, computed on the tax due on the returned income; tolerance and unanticipated-income provisos apply.
Litigation profile: Well litigated — returned-income base; capital-gains / first-time-income proviso; MAT application.
A. COMMENTARY
1. Place in the scheme
Section 234C charges interest for deferment of advance tax — that is, for shortfall in the prescribed instalments of advance tax during the financial year, as opposed to the overall year-end shortfall caught by section 234B. The two operate together: a taxpayer who underpays an instalment suffers 234C for that quarter, and if the cumulative position still falls short of ninety per cent of assessed tax, 234B follows. Inserted by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1 April 1989, section 234C makes the instalment discipline of sections 208-211 financially enforceable.
2. The instalment grid and the base
For a non-presumptive assessee, sub-section (1)(a) prescribes cumulative thresholds — 15 per cent by 15 June, 45 per cent by 15 September, 75 per cent by 15 December and 100 per cent by 15 March — and charges one per cent per month for three months on the shortfall at each of the first three dates, and one per cent for one month on the 15 March shortfall. A tolerance proviso shields the first two instalments if at least 12 per cent and 36 per cent respectively are paid. For a presumptive assessee under section 44AD(1) or 44ADA(1), sub-section (1)(b) requires the entire advance tax by 15 March. Crucially, the base throughout is the "tax due on the returned income" — the tax on the income declared in the return, not the assessed income — as Explanation 1 defines and the courts have consistently held. This makes 234C narrower than 234B in its base.
3. The unanticipated-income proviso
The first proviso to sub-section (1) excludes from the charge any shortfall attributable to under-estimate or failure to estimate (a) capital gains, (b) winnings of the nature in section 2(24)(ix), (c) income under "Profits and gains of business or profession" arising under that head for the first time, and (d) dividend income — provided the assessee pays the whole tax on such income in the remaining instalments, or by 31 March where no instalment is then due. The rationale is that a taxpayer cannot be expected to estimate, at the June or September instalment date, income that had not by then accrued. The practitioner should document the date of accrual of such income to bring the case within the proviso; the Tribunal regularly deletes 234C where capital gains arose only in the fourth quarter and tax was paid with the final instalment.
4. Mandatory nature and MAT
Section 234C shares the mandatory character of its companions — Anjum M.H. Ghaswala (2002) 252 ITR 1 — so relief lies only through the CBDT's section 119 order. It applies to companies taxed on book profits under the minimum alternate tax: Joint CIT v. Rolta India Ltd. (2011) 330 ITR 470 holds that advance tax is payable on MAT income and 234C follows on instalment default. Because the base is the returned income, no 234C arises where the return itself shows the tax fully discharged through the prescribed instalments, even if a higher figure is later assessed.
5. Finance Act, 2026
The Finance Act, 2026 does not amend section 234C or any provision of Part F. The instalment scheme, the tolerance provisos and the unanticipated-income carve-out continue unchanged. The new section 234-I inserted by the Finance Act, 2026 is a fee on revised returns in Part G and has no bearing on the deferment interest in section 234C.
B. STATUTORY TEXT (verbatim)
Reproduced verbatim from the Income-tax Act, 1961 (as amended up to and including the Finance Act, 2025; unaffected by the Finance Act, 2026). Section 234C, Part F, Chapter XVII.
Interest for deferment of advance tax.
234C. (1) Where in any financial year,—
(a) an assessee, other than the assessee referred to in clause (b), who is liable to pay advance tax under section 208 has failed to pay such tax or—
(i) the advance tax paid by such assessee on its current income on or before the 15th day of June is less than fifteen per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of September is less than forty-five per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December is less than seventy-five per cent of the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent per month for a period of three months on the amount of the shortfall from fifteen per cent or forty-five per cent or seventy-five per cent, as the case may be, of the tax due on the returned income;
(ii) the advance tax paid by the assessee on the current income on or before the 15th day of March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent on the amount of the shortfall from the tax due on the returned income:
Provided that if the advance tax paid by the assessee on the current income, on or before the 15th day of June or the 15th day of September, is not less than twelve per cent or, as the case may be, thirty-six per cent of the tax due on the returned income, then, the assessee shall not be liable to pay any interest on the amount of the shortfall on those dates;
(b) an assessee who declares profits and gains in accordance with the provisions of sub-section (1) of section 44AD or sub-section (1) of section 44ADA, as the case may be who is liable to pay advance tax under section 208 has failed to pay such tax or the advance tax paid by the assessee on its current income on or before the 15th day of March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent on the amount of the shortfall from the tax due on the returned income:
Provided that nothing contained in this sub-section shall apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of under-estimate or failure to estimate—
(a) the amount of capital gains; or
(b) income of the nature referred to in sub-clause (ix) of clause (24) of section 2; or
(c) income under the head "Profits and gains of business or profession" in cases where the income accrues or arises under the said head for the first time; or
(d) the amount of dividend income, and the assessee has paid the whole of the amount of tax payable in respect of income referred to in clause
(a) or clause (b) or clause (c) or clause (d), as the case may be, had such income been a part of the total income, as part of the remaining instalments of advance tax which are due or where no such instalments are due, by the 31st day of March of the financial year:
Provided further that nothing contained in this sub-section shall apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of increase in the rate of surcharge under section 2 of the Finance Act, 2000 (10 of 2000), as amended by the Taxation Laws (Amendment) Act, 2000 (1 of 2001), and the assessee has paid the amount of shortfall, on or before the 15th day of March, 2001 in respect of the instalment of advance tax due on the 15th day of June, 2000, the 15th day of September, 2000 and the 15th day of December, 2000 :
Provided also that nothing contained in this sub-section shall apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of increase in the rate of surcharge under section 2 of the Finance Act, 2000 (10 of 2000) as amended by the Taxation Laws (Amendment) Act, 2001 (4 of 2001) and the assessee has paid the amount of shortfall on or before the 15th day of March, 2001 in respect of the instalment of advance tax due on the 15th day of June, 2000, the 15th day of September, 2000 and 15th day of December, 2000.
Explanation 1.—In this section, "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 commencing on the 1st day of April 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 in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income;
(ia) any relief of tax allowed under section 89;
(ii) any relief of tax allowed under section 90 on account of tax paid in a country outside India;
(iii) any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section;
(iv) any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and
(v) any tax credit allowed to be set off in accordance with the provisions of section 115JAA or section 115JD.
Explanation 2.—For the purposes of this sub-section, the term "dividend" shall have the meaning assigned to it in clause (22) of section 2, but shall not include sub-clause (e) thereof.
(2) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years.
C. AUTHORITIES
Arranged by issue: the mandatory character and MAT application; the "returned income" base; and the unanticipated-income proviso (capital gains and similar receipts). Citations web-verified.
(i) Mandatory levy; application to MAT companies
CIT v. Anjum M.H. Ghaswala (Supreme Court, Constitution Bench)
Citation: (2002) 252 ITR 1 (SC) [5 Judges].
Holding: Levy of interest under sections 234A/234B/234C is mandatory; only relief permitted by a CBDT section 119 circular is available, and even the Settlement Commission cannot waive it. Anchors the mandatory character of section 234C.
Joint CIT v. Rolta India Ltd. (Supreme Court)
Citation: (2011) 330 ITR 470 (SC).
Holding: Advance tax is payable on income computed under the MAT provisions (sections 115JA/115JB); on default in the instalments, interest under section 234C (and 234B) is chargeable. Section 115JB is a self-contained code attracting the advance-tax machinery.
Brij Lal v. CIT (Supreme Court, Constitution Bench)
Citation: (2010) 328 ITR 477 (SC) [5 Judges].
Holding: Sections 234A/234B/234C apply in Settlement Commission proceedings; interest runs up to the section 245D(1) order and cannot be recomputed under section 154. Fixes the terminal point and limits of the 234C charge in settlement.
(ii) Base is the tax due on the RETURNED income
CIT v. Smt. Premlata Jalani (Rajasthan High Court)
Citation: (2003) 264 ITR 744 (Raj).
Holding: Interest under section 234C is computed on the tax due on the returned income, and the proviso operates so that income (capital gains) accruing after an instalment due date is excluded from the advance-tax requirement for the earlier instalments. Leading High Court authority on both the returned-income base and the proviso.
Sumitomo Corporation v. DCIT (ITAT, Delhi)
Citation: ITAT Delhi Bench (AY 2013-14).
Holding: Section 234C is to be levied on the tax due on the returned income, contrasting the express words of section 234C with the "assessed tax" base of section 234B; the Assessing Officer was directed to restrict the levy accordingly. Persuasive Tribunal authority on the returned-vs-assessed distinction.
EY Global Delivery Services India LLP v. DCIT (ITAT, Bangalore)
Citation: ITAT Bangalore Bench.
Holding: Following the Mumbai Bench in Aishwarya K. Rai v. DCIT, the Tribunal held that section 234C interest must be charged on the returned income, not the assessed income, and directed re-computation. Reinforces the returned-income rule.
(iii) Unanticipated-income proviso — capital gains, first-time business income
Hamilton Industries (P) Ltd. v. ITO (ITAT, Mumbai)
Citation: ITA No. 218/Mum/2022.
Holding: Applying the proviso to section 234C, where capital-gains income arose only in the fourth quarter and the advance tax thereon was paid on 15/31 March, no interest under section 234C is chargeable for the shortfall in the earlier instalments; the interest deleted. Direct Tribunal illustration of the capital-gains carve-out.
CIT v. Smt. Premlata Jalani (Rajasthan High Court) — applied
Citation: (2003) 264 ITR 744 (Raj).
Holding: Where capital gains accrued after 15 March, 234C could be charged only for the residual one-month period on tax payable by 31 March; the proviso prevents loading the earlier instalments with tax on income not yet arisen. (Cross-listed for the proviso point.)