Miss your advance tax? How interest under sections 234B and 234C is charged at 1% a month by the department

Advance tax is a "pay-as-you-earn" system: if your total tax liability for a financial year is Rs 10,000 or more after tax deducted at source (TDS), Section 208 of the Income-tax Act, 1961 requires you to deposit it in instalments during the year rather than in one lump at filing. Miss those instalments and the Income Tax Department does not simply wait for the money; under sections 234B and 234C it charges interest at 1% per month or part of a month. This is the single most common surprise on an intimation under Section 143(1), and it is entirely avoidable once you understand how the two provisions stack.

According to the Income Tax Department's Tax Payments FAQ (incometax.gov.in), interest under Section 234B is levied "for failure to pay advance tax or where advance tax paid is less than 90% of assessed tax", while Section 234C charges interest "for deferment of advance-tax instalments" due on or before 15 June, 15 September, 15 December and 15 March. Below is exactly how each is computed for Financial Year 2025-26 (Assessment Year 2026-27), with a worked example that separates the two so you can see where every rupee of interest comes from.

What the Section Says

Section 234C penalises the timing of your payments within the year, while Section 234B penalises the overall shortfall carried into the assessment year. They are cumulative: a taxpayer who pays nothing until filing typically bears both.

Who must pay advance tax at all. Under Section 208, advance tax applies only when the estimated tax payable is Rs 10,000 or more in the financial year. Under Section 207, a resident senior citizen aged 60 or above who has no income from business or profession is exempt from advance tax entirely, so sections 234B and 234C never touch them. You can size your own liability first using the income tax calculator and confirm which advance tax instalments apply.

Section 234C — deferment of instalments. Interest is charged at 1% per month (simple interest) on the shortfall in each instalment against the prescribed cumulative percentage of tax due on returned income. For the first three instalments the interest runs for three months each; for the final 15 March instalment it runs for one month. Crucially, the law grants a cushion on the first two instalments: no interest arises on the June instalment if you have paid at least 12% of the tax due, or on the September instalment if you have paid at least 36%, even though the headline requirements are 15% and 45%.

Section 234B — default in payment of advance tax. Section 234B applies where you paid no advance tax, or paid less than 90% of the "assessed tax". Assessed tax means the tax on your total income reduced by TDS/TCS, relief under sections 89, 90, 90A and 91, and any tax credit. Interest runs at 1% per month or part of a month from 1 April of the assessment year until the date you actually pay (as self-assessment tax) or until the regular assessment is made. The shortfall is rounded down to the nearest Rs 100 under Rule 119A before applying 1%.

The instalment calendar under Section 211 for FY 2025-26 is:

Taxpayers opting for presumptive taxation under sections 44AD or 44ADA follow a simpler rule: 100% of the advance tax is due in a single instalment on or before 15 March 2026, so their entire liability under presumptive taxation collapses into one date.

Worked Example

Consider Priya, a freelance design consultant for FY 2025-26 (AY 2026-27). Her total tax on income works out to Rs 1,50,000, and her clients have already deducted Rs 50,000 as TDS under Section 194J. Her assessed tax, and the "tax due on returned income" for 234C, is therefore Rs 1,50,000 minus Rs 50,000 = Rs 1,00,000. Because that exceeds Rs 10,000, advance tax applies. Assume Priya, busy with projects, pays nothing during the year and clears the full Rs 1,00,000 as self-assessment tax when she files on 15 July 2026.

Step 1 — Section 234C on the four missed instalments. Each instalment shortfall is measured against the cumulative percentage of Rs 1,00,000:

Total Section 234C interest = Rs 450 + Rs 1,350 + Rs 2,250 + Rs 1,000 = Rs 5,050.

Step 2 — Section 234B on the year-end default. Priya paid nil advance tax, which is below 90% of her Rs 1,00,000 assessed tax, so 234B bites. Interest runs from 1 April 2026 to the payment date of 15 July 2026. Part of a month counts as a full month, so April, May, June and July together are four months: 1% x 4 x Rs 1,00,000 = Rs 4,000.

Total interest cost. Priya pays Rs 5,050 (234C) plus Rs 4,000 (234B) = Rs 9,050 on top of her Rs 1,00,000 tax, an effective 9.05% surcharge purely for late payment. Had she instead paid Rs 15,000 by 15 June, Rs 30,000 by 15 September, Rs 30,000 by 15 December and Rs 25,000 by 15 March 2026, both interest heads would have been nil. Model this instalment planning against your own numbers with the TDS calculator to see how much TDS already covers your liability before you owe any advance tax, and check whether the old or new regime changes your figure using the old vs new regime comparison.

Common Mistakes

These are the recurring errors flagged in Section 143(1) intimations and scrutiny for AY 2026-27:

• Assuming TDS covers everything. Salaried taxpayers with side income (freelancing, capital gains, interest above Rs 10,000, rent) routinely find their TDS falls short of 90% of assessed tax, triggering 234B despite "salary tax being deducted". The Rs 10,000 threshold in Section 208 is on total tax, not per source.
• Treating "part of a month" as pro-rata. Both sections round upward: a payment on 2 April 2026 still attracts a full month's 1% for that month. There is no daily proration.
• Forgetting the capital-gains and lottery relief. Under the proviso to Section 234C, no interest is charged on a shortfall arising because capital gains or winnings from lottery could not be estimated in advance, provided the tax on that income is paid in the remaining instalments (or by 31 March 2026 if it arises after the final instalment). Taxpayers wrongly pay 234C on a March property sale they could not have foreseen in June.
• Missing the 12% and 36% cushions. Some taxpayers over-pay to hit exactly 15% by 15 June when 12% would have avoided interest, and others panic at 45% when 36% suffices by 15 September.
• Paying self-assessment tax late without realising 234B keeps running. Interest under 234B accrues every month until the tax is actually deposited, so a Rs 1,00,000 shortfall left unpaid from 1 April 2026 to a 15 September 2026 filing costs six months, not four.
• Senior citizens overpaying. A resident aged 60-plus with only pension, interest and capital gains but no business income owes no advance tax under Section 207, yet many still remit instalments unnecessarily.

FAQ

Is the interest under sections 234B and 234C tax-deductible?

No. Interest paid under sections 234B and 234C is a charge for delayed payment of your own tax and is not an allowable business expenditure or deduction. It is simply added to your tax payable in the ITR computation for AY 2026-27.

Can I be charged under both 234B and 234C for the same year?

Yes, and this is the norm for a taxpayer who defers instalments during FY 2025-26 and still carries a shortfall past 31 March 2026. Section 234C covers the deferment within the year and Section 234B covers the residual default from 1 April 2026 onward; in Priya's example they added to Rs 9,050 combined.

Does the interest rate ever change from 1%?

The statutory rate under both sections has been 1% per month or part of a month, and the Income Tax Department's Tax Payments FAQ confirms it remains 1% for advance-tax defaults, with 234C also expressible as 3% for a three-month instalment block. It is not linked to the repo rate and has not been revised for FY 2025-26.

How is interest under 234B calculated if I pay part of the tax before filing?

Section 234B interest is computed on the shortfall below assessed tax, rounded down to the nearest Rs 100, at 1% per month from 1 April 2026 until each payment. If you deposit part of the tax in, say, May 2026, interest on that portion stops from the month of payment, while interest on the remaining balance continues until it is cleared.

Do sections 234B and 234C apply under the new tax regime?

Yes. Both sections are procedural provisions on the timing of tax payment and apply identically whether you compute tax under the old or the new regime. The regime only changes your tax figure, not the advance-tax discipline; compare the two with the income tax calculator.

What happens if my TDS was deducted but not deposited by the payer?

Section 234B interest is computed after crediting TDS that has been deducted, per the department's position, even where the deductor delays deposit; you should ensure the amount reflects in your Form 26AS and Annual Information Statement for FY 2025-26 before filing to claim the credit correctly.

Is there any waiver of 234B or 234C interest?

There is no discretionary waiver at assessment for a routine default. The Central Board of Direct Taxes has, by circular, permitted reduction or waiver in narrow situations (for example where income was not anticipated due to a retrospective amendment), but ordinary cash-flow delays do not qualify. The safest course remains paying each instalment on the four Section 211 dates.