Unexpected Interest Notices Under Sections 234B And 234C Catch Taxpayers Off Guard

This tax-filing season, a growing number of taxpayers are being jolted by income-tax intimations carrying unexpectedly high interest charges under Sections 234B and 234C, according to a recent report by Moneycontrol. What has caused particular unease is that the interest levied is often far higher than what taxpayers had worked out on their own while filing returns. In many cases, the tax itself has already been paid, yet the interest demand comes as an unpleasant afterthought.

Why This Is Happening 

The issue is widely being attributed to the way the Income Tax Department’s Central Processing Centre (CPC) is computing interest, especially in cases involving capital gains and other income where tax is not deducted at source.

Salaried taxpayers usually remain insulated from such problems because employers deduct tax at the source throughout the year. Complications arise when individuals earn income, such as profits from shares, mutual funds, or property sales, where the responsibility of paying tax shifts entirely to the taxpayer in the form of advance tax.

Advance Tax Rules And The Timing Mismatch

Under the law, advance tax has to be paid in installments during the financial year. If the required amounts are not paid on time, interest becomes applicable. However, many taxpayers think that the system is overlooking a key detail- the timing of when the income was earned.

In several instances, capital gains earned late in the year are being treated as if they existed from April 1. This results in interest being charged for advance-tax installments that fell due months before the income was earned.

Say an investor sells shares in January, calculates the corresponding tax, and pays it ahead of the March 31 deadline. Yet, when the tax intimation arrives, it may still reflect interest being charged for the quarterly advance tax periods of June, September, or December. From the taxpayer’s perspective, this appears unfair, as there was no income and therefore no tax liability during those earlier months.

What Sections 234B And 234C Are About 

Section 234B comes into play when at least 90 per cent of the total tax liability is not paid by the end of the financial year, while Section 234C deals with delays or shortfalls in paying advance tax installments.

Tax professionals point out that the law and past rulings clearly recognize the timing of income. Where income arises after an advance-tax due date, interest under Section 234C should be calculated only from the time the income is earned, provided the tax is paid in the subsequent installment or by March 31. The apparent failure of automated systems to factor this in is what is leading to inflated interest demands.

Similar complaints have emerged from taxpayers opting for presumptive taxation, where advance tax is payable in a single installment by March 15, yet interest is sometimes charged for earlier quarters. Some filers who submitted updated returns noticed that interest was computed up to the date of processing, instead of stopping at the date on which the tax was actually paid.

Those who encounter this mismatch should first go through the intimation carefully and ask for a rectification if the numbers don’t tally with when the income was earned.