Unraveling the Nuances of Section 234C Interest on Returned Income

Imagine you're liable to pay advance tax.

You've calculated the amount, but for some reason, you either don't pay the advance tax or pay it later.

What happens then?

Well, you'll have to pay interest under section 234C of the Income Tax Act.

Section 234C is like a strict teacher - it penalizes you for your late payment. The penalty comes as interest, calculated at 1% per month on the amount of underpaid advance tax.

So, if you've underpaid advance tax by ₹10,000, you're looking at an interest of ₹100 per month until you pay up.

Now imagine this:

Income tax department picks up your case for scrutiny assessment and issues notice under section 143(2).

The department disallows a few of your expense claims, adds a few more incomes, disallows your foreign tax credit claim.

As a result, the department assesses your income at a higher amount.

Now the question arises, how will you compute your 234C interest liability?

Should you calculate advance tax using the returned income, or the assessed income?

A recent tribunal ruling clarified this. They held you should compute the 234C interest on the returned income, and not on the assessed income.

This decision is a game-changer.

It not only provides substantial relief for taxpayers, but also sets a crucial precedent for similar cases in the future.

So, the next time you're calculating your 234C interest, remember - it's on the returned income.

Court Name : ITAT Bangalore

Parties : EY Global Delivery Services India LLP Vs DCIT (ITAT Bangalore)

Decision Date : May 31, 2023

Judgement ref : ITA No. 283/Bang/2023