Avoid the 234C Interest Penalty: What to Do if You Missed the March 15 Tax Deadline

Missing the advance tax deadline can be stressful, especially if you’re worried about interest charges. But don’t panic! There’s still a chance to avoid those penalties, even though the March 15th deadline has passed. 

If you’re a salaried employee who earned extra income this year and missed paying advance tax, there’s a way to avoid interest charges under Section 234C, and even Section 234B, in some cases. The key is to act before March 31st. Here’s the basic idea: anyone whose total tax liability for the year exceeds Rs. 10,000 is required to pay advance tax in four installments. This includes salaried individuals who have income from sources beyond their regular salary, like capital gains, rental income, interest from savings accounts or FDs, side gigs or freelancing, or even income from crypto or stock trading.

What is Section 234C?

Section 234C: This section of the tax code penalizes you with interest if you don’t pay your advance tax on time. The penalty is 1% per month on the amount you’re short, for each month you’re late.

Why Salaried Employees Often Don’t Pay Advance Tax: Most salaried employees don’t need to worry about advance tax because their employers already withhold taxes from their paychecks (called TDS – Tax Deducted at Source). This TDS is calculated based on the employee’s initial tax declarations at the start of the year.

The Catch: This system works fine as long as your income is just your salary. But if you earn extra income, like from investments or rental properties, your employer won’t automatically withhold taxes for that. This means you’re responsible for paying the extra tax yourself, either through advance tax payments or by asking your employer to deduct more TDS from your salary.

What to Do If You Have Extra Income:

You have two options to avoid penalties:

It’s important to pay your advance tax before March 31st, even if you missed the original deadline of March 15th. You might still be able to avoid paying interest under Section 234C, especially if you made your extra income during the last quarter of the financial year (January to March).

Another option, and one that many people don’t know about, is to tell your employer about your additional income. You can ask them to deduct more tax from your March salary. This is perfectly legal, and the Income Tax Act actually allows employers to make adjustments to your tax throughout the year. You just need to give them a signed statement (no special format required) saying how much extra income you’ve had.

If you do this, your employer will deduct enough tax to cover your additional income, so you won’t have to pay any penalties under Section 234C. In some cases, you might even avoid penalties under Section 234B too.

Under what circumstances can employers deny such a request?

Despite being legally valid, employers can practically refuse such requests under certain conditions. For example, if the payroll for March has already been processed, they may not be able to make changes. Additionally, if the tax to be deducted exceeds the salary payable, they may not accommodate the request. Many companies also have internal cut-off policies, such as deadlines around March 10 or 15, for processing declarations. However, experts point out that there is no law preventing an employer from deducting additional TDS in March; it is more of a policy or administrative limitation within the company.

If you miss March 31, there could be consequences. If you do not pay advance tax or get additional TDS deducted by this date, you may face Section 234C interest, which is charged for deferring tax installments. Additionally, Section 234B interest will apply if 90% of your total tax liability hasn’t been paid by March 31. This interest is charged at 1% per month until the date you file your Income Tax Return (ITR). Therefore, March 31 is the last chance to avoid both types of interest penalties.