My client sold a property in February and paid the whole tax on it with the March instalment. The intimation still charges s.234C interest on the June, September and December instalments. Is there a defence in the section itself?
Yes, and it is in the section itself rather than in any circular. The first proviso to s.234C(1) disapplies the sub-section to any shortfall in the payment of tax due on the returned income where the shortfall is on account of under-estimate or failure to estimate (a) the amount of capital gains, (b) income of the nature referred to in s.2(24)(ix) — casual income such as winnings from lotteries, crossword puzzles and races, (c) income under the head 'Profits and gains of business or profession' in cases where the income accrues or arises under that head for the first time, or (d) the amount of dividend income. The relief is conditional: the assessee must have paid the whole of the tax payable in respect of that income, computed as if it were 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 31 March of the financial year.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2021-04-01, reported as Income-tax Act, 1961, s.234C(1), first proviso, as printed on the departmental section pages stamped Year: 2025, Year: 2023, Year: 2022 and Year: 2021; clause (d) in its present form substituted, and Explanation 2 inserted, by the Finance Act, 2021, s.59, operative from 1 April 2021 by force of s.1(2) of that Act. It bears on section 234C, section 234C(1), section 234C(1)(b), section 2(24)(ix), section 2(22), section 115BBDA, section 211, section 44AD, section 44ADA of the Income Tax Act 1961, in Capital Gains, Assessment & Scrutiny and Demand, Recovery & Stay matters.
This is the one provision that makes a lumpy, unforeseeable receipt survivable, and its conditions are strict. Four points decide most disputes. First, the relief is for a shortfall 'on account of' the under-estimate or failure to estimate one of the four listed items, so the shortfall attributable to ordinary, foreseeable income is not covered and interest on that part stands. Second, the payment must be made in the remaining instalments that fall due after the income arises — a capital gain earned in July and paid for only in March does not qualify for the September and December dates, because those instalments were still to come. Third, where no instalment remains, the outer limit is 31 March of the financial year, not the due date for filing the return; a payment as self-assessment tax in July of the assessment year is too late. Fourth, clause (d) as the section now reads is 'the amount of dividend income' at large, and Explanation 2 to the section provides that 'dividend' has the meaning in s.2(22) but shall not include sub-clause (e) — so deemed dividend by way of a loan or advance to a substantial shareholder is outside the relief. The dates on clause (d) decide which form applies. Clause (d) was first inserted, in the narrow form "income of the nature referred to in sub-section (1) of section 115BBDA", by s.75 of the Finance Act, 2017, in force 1 April 2017; it was substituted by the present words "the amount of dividend income", and Explanation 2 was inserted, by s.59 of the Finance Act, 2021, in force 1 April 2021 by s.1(2) of that Act. So the narrow 115BBDA form governs assessment years 2017-18 to 2020-21 — the life of s.115BBDA itself — and the wide "amount of dividend income" form governs assessment year 2021-22 onwards, which is exactly when dividend became taxable in the shareholder's hands. The governing brief for this batch described clause (d) as covering "s.115BBDA dividend"; that was right for AY 2017-18 to AY 2020-21 and is wrong for every year from AY 2021-22, and anyone applying the narrow form to a recent year will refuse a client relief the section now gives.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 234C(1)(a) charges an assessee other than a presumptive assessee simple interest at one per cent per month for three months on the shortfall from fifteen, forty-five and seventy-five per cent of the tax due on the returned income at the June, September and December dates, and at one per cent on the shortfall at 15 March; a proviso to clause (a) removes interest at the June and September dates where at least twelve and thirty-six per cent respectively have been paid. Clause (b) charges a s.44AD(1) or s.44ADA(1) assessee at one per cent on the shortfall at 15 March. The first proviso to the sub-section then reads: '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:'. Two further provisos deal only with the surcharge increase under the Finance Act, 2000 as amended in 2000 and 2001. Sub-section (2) applies the section from the assessment year commencing 1 April 1989. Explanation 1 defines 'tax due on the returned income'. Explanation 2 provides that 'dividend' has the meaning assigned to it in s.2(22) but shall not include sub-clause (e) thereof.
Section 234C does not apply to a shortfall in the payment of tax due on the returned income where the shortfall is on account of under-estimate or failure to estimate capital gains, income of the nature referred to in s.2(24)(ix), income under the head 'Profits and gains of business or profession' accruing or arising under that head for the first time, or the amount of dividend income — provided the assessee has paid the whole of the tax payable in respect of that income, computed as if it formed 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 31 March of the financial year. By Explanation 2, dividend for this purpose has the meaning in s.2(22) but excludes s.2(22)(e).
Not applicable — this is a statement of the statutory text as printed on the departmental section pages. No judicial reasoning is involved.
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:
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Handle my notice → Ask a CA on WhatsAppYes, and it is in the section itself rather than in any circular. The first proviso to s.234C(1) disapplies the sub-section to any shortfall in the payment of tax due on the returned income where the shortfall is on account of under-estimate or failure to estimate (a) the amount of capital gains, (b) income of the nature referred to in s.2(24)(ix) — casual income such as winnings from lotteries, crossword puzzles and races, (c) income under the head 'Profits and gains of business or profession' in cases where the income accrues or arises under that head for the first time, or (d) the amount of dividend income. The relief is conditional: the assessee must have paid the whole of the tax payable in respect of that income, computed as if it were 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 31 March of the financial year. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 234C, section 234C(1), section 234C(1)(b), section 2(24)(ix), section 2(22), section 115BBDA, section 211, section 44AD, section 44ADA of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, s.234C(1), first proviso, as printed on the departmental section pages stamped Year: 2025, Year: 2023, Year: 2022 and Year: 2021; clause (d) in its present form substituted, and Explanation 2 inserted, by the Finance Act, 2021, s.59, operative from 1 April 2021 by force of s.1(2) of that Act. This is the one provision that makes a lumpy, unforeseeable receipt survivable, and its conditions are strict. Four points decide most disputes. First, the relief is for a shortfall 'on account of' the under-estimate or failure to estimate one of the four listed items, so the shortfall attributable to ordinary, foreseeable income is not covered and interest on that part stands. Second, the payment must be made in the remaining instalments that fall due after the income arises — a capital gain earned in July and paid for only in March does not qualify for the September and December dates, because those instalments were still to come. Third, where no instalment remains, the outer limit is 31 March of the financial year, not the due date for filing the return; a payment as self-assessment tax in July of the assessment year is too late. Fourth, clause (d) as the section now reads is 'the amount of dividend income' at large, and Explanation 2 to the section provides that 'dividend' has the meaning in s.2(22) but shall not include sub-clause (e) — so deemed dividend by way of a loan or advance to a substantial shareholder is outside the relief. The dates on clause (d) decide which form applies. Clause (d) was first inserted, in the narrow form "income of the nature referred to in sub-section (1) of section 115BBDA", by s.75 of the Finance Act, 2017, in force 1 April 2017; it was substituted by the present words "the amount of dividend income", and Explanation 2 was inserted, by s.59 of the Finance Act, 2021, in force 1 April 2021 by s.1(2) of that Act. So the narrow 115BBDA form governs assessment years 2017-18 to 2020-21 — the life of s.115BBDA itself — and the wide "amount of dividend income" form governs assessment year 2021-22 onwards, which is exactly when dividend became taxable in the shareholder's hands. The governing brief for this batch described clause (d) as covering "s.115BBDA dividend"; that was right for AY 2017-18 to AY 2020-21 and is wrong for every year from AY 2021-22, and anyone applying the narrow form to a recent year will refuse a client relief the section now gives. If it applies to you, the first step is this: Attribute the shortfall before arguing about it: work out how much of the shortfall at each due date is referable to the capital gain, casual income, first-year business income or dividend, and how much to ordinary income. The proviso saves only the former.
Section 234C(1)(a) charges an assessee other than a presumptive assessee simple interest at one per cent per month for three months on the shortfall from fifteen, forty-five and seventy-five per cent of the tax due on the returned income at the June, September and December dates, and at one per cent on the shortfall at 15 March; a proviso to clause (a) removes interest at the June and September dates where at least twelve and thirty-six per cent respectively have been paid. Clause (b) charges a s.44AD(1) or s.44ADA(1) assessee at one per cent on the shortfall at 15 March. The first proviso to the sub-section then reads: '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:'. Two further provisos deal only with the surcharge increase under the Finance Act, 2000 as amended in 2000 and 2001. Sub-section (2) applies the section from the assessment year commencing 1 April 1989. Explanation 1 defines 'tax due on the returned income'. Explanation 2 provides that 'dividend' has the meaning assigned to it in s.2(22) but shall not include sub-clause (e) thereof. The matter was decided on 2021-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Section 234C does not apply to a shortfall in the payment of tax due on the returned income where the shortfall is on account of under-estimate or failure to estimate capital gains, income of the nature referred to in s.2(24)(ix), income under the head 'Profits and gains of business or profession' accruing or arising under that head for the first time, or the amount of dividend income — provided the assessee has paid the whole of the tax payable in respect of that income, computed as if it formed 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 31 March of the financial year. By Explanation 2, dividend for this purpose has the meaning in s.2(22) but excludes s.2(22)(e).
Not applicable — this is a statement of the statutory text as printed on the departmental section pages. No judicial reasoning is involved. In the words reproduced by the source cited on this page: "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:"
It was decided by the CBDT Circulars & Instructions on 2021-04-01 and is reported as Income-tax Act, 1961, s.234C(1), first proviso, as printed on the departmental section pages stamped Year: 2025, Year: 2023, Year: 2022 and Year: 2021; clause (d) in its present form substituted, and Explanation 2 inserted, by the Finance Act, 2021, s.59, operative from 1 April 2021 by force of s.1(2) of that Act. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 234C, section 234C(1), section 234C(1)(b), section 2(24)(ix), section 2(22), section 115BBDA, section 211, section 44AD, section 44ADA, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Section 234C does not apply to a shortfall in the payment of tax due on the returned income where the shortfall is on account of under-estimate or failure to estimate capital gains, income of the nature referred to in s.2(24)(ix), income under the head 'Profits and gains of business or profession' accruing or arising under that head for the first time, or the amount of dividend income — provided the assessee has paid the whole of the tax payable in respect of that income, computed as if it formed 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 31 March of the financial year. By Explanation 2, dividend for this purpose has the meaning in s.2(22) but excludes s.2(22)(e). It arises in Capital Gains, Assessment & Scrutiny and Demand, Recovery & Stay matters, on section 234C, section 234C(1), section 234C(1)(b), section 2(24)(ix), section 2(22), section 115BBDA, section 211, section 44AD, section 44ADA of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show payment in the remaining instalments. Produce the challan dates against the instalment dates falling after the income arose, and where none remained, show payment by 31 March of the financial year. Compute the tax on the sheltered income as the proviso directs — the whole of the tax payable in respect of that income 'had such income been a part of the total income' — and show that the whole of it was paid, not part. For a first-year business, be precise about what 'for the first time' means on the facts: the proviso speaks of income accruing or arising under the head 'Profits and gains of business or profession' for the first time, so an existing business's new line of activity is not within it. For dividend, check Explanation 2: s.2(22)(e) deemed dividend is excluded from the relief, so a loan or advance treated as dividend gets no shelter. For a s.44AD or s.44ADA assessee the whole question usually falls away, because s.234C(1)(b) works on a single 15 March date; check which limb the intimation has applied before arguing the proviso. Do not state the proviso from incometaxindia.gov.in/w/section-234c — that page is stamped Year: 2000 and prints only clauses (a) and (b), with no first-year business income and no dividend clause at all.
Still good law. The proviso in the form set out above is printed identically on four departmental pages spanning Year: 2021 to Year: 2025, which is the strongest evidence available this pass that it is current. The earlier form of clause (d), referring to income of the nature in s.115BBDA(1), was inserted by s.75 of the Finance Act, 2017 with effect from 1 April 2017 and substituted by the present words, with Explanation 2 added, by s.59 of the Finance Act, 2021 with effect from 1 April 2021; both dates were established from the Finance Act texts and their s.1(2) commencement clauses, not from a departmental footnote, because no footnote apparatus rendered. The narrow form accordingly governs AY 2017-18 to AY 2020-21 and is superseded by amendment from AY 2021-22. Validity was not checked against any judicial decision. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Sub-section (1) of s.234C, including all its provisos, sub-section (2) and the Explanations, was transcribed in full from https://incometaxindia.gov.in/w/section-234c-37 (heading 'Interest for deferment of advance tax', Act 'Income-tax Act, 1961', Year: 2025). The first proviso, with its lettered clauses (a) to (d), was transcribed independently and identically from /w/section-234c-34 (Year: 2023), /w/section-234c-33 (Year: 2022) and /w/section-234c-32 (Year: 2021). The Year: 2020 page at /w/section-234c-30 prints clause (d) in the different form 'income of the nature referred to in sub-section (1) of section 115BBDA' and carries no Explanation 2, which brackets the substitution between the Year: 2020 and Year: 2021 texts. No footnote apparatus rendered on any of these pages, so the substituting Act was established on an independent route on verification: https://indiankanoon.org/doc/151111469/ prints 'Section 59 in THE FINANCE ACT, 2021. Amendment of section 234C', which substitutes clause (d) with '(d) the amount of dividend income,' and renumbers the Explanation as Explanation 1 and inserts Explanation 2 in the exact words the departmental page prints; and https://indiankanoon.org/doc/17697768/ prints 'Section 1 in THE FINANCE ACT, 2021' — '(2) Save as otherwise provided in this Act,— (a) sections 2 to 88 shall come into force on the 1st day of April, 2021'. Section 59 falls within that range, so the present clause (d) and Explanation 2 operate from 1 April 2021, and decided_on is set to that date. The earlier 115BBDA form of clause (d) was inserted by s.75 of the Finance Act, 2017 (https://indiankanoon.org/doc/182016979/), in force 1 April 2017 by s.1(2) of that Act. Archived pages on the same URL pattern that must not be used to state the current position: /w/section-234c (Year: 2000), /w/section-234c-4 (Year: 2002), /w/section-234c-8 (Year: 1991), /w/section-234c-16 (Year: 2006), /w/section-234c-19 (Year: 2007), /w/section-234c-21 (Year: 2008), /w/section-234c-24 (Year: 1988). Correction to the governing brief, which is recorded in NOTES-B82.md: the brief describes the s.234C proviso as covering 's.115BBDA dividend'; on every departmental page from Year: 2021 onwards clause (d) reads 'the amount of dividend income'. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Section 234C does not apply to a shortfall in the payment of tax due on the returned income where the shortfall is on account of under-estimate or failure to estimate capital gains, income of the nature referred to in s.2(24)(ix), income under the head 'Profits and gains of business or profession' accruing or arising under that head for the first time, or the amount of dividend income — provided the assessee has paid the whole of the tax payable in respect of that income, computed as if it formed 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 31 March of the financial year. By Explanation 2, dividend for this purpose has the meaning in s.2(22) but excludes s.2(22)(e).
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