Section 234C interest relaxed on dividend income, Capital Gain

Union Budget 2021 proposed to relax Section 234C interest on Dividend income along with capital gains if shortfall in the advance tax payments and tax due has been paid in the subsequent advance tax instalments.

Advance tax instalment for dividend income, Capital Gain etc.

Section 234C of the Act provides for payment of interest by an assessee who does not pay or fails to pay on time the advance tax instalments as per section 208 of the Act. The assessee is liable to pay a simple interest at the rate of 1% per month for a period of three months on the amount of shortfall calculated with respect to the due dates for advance tax instalments.

The first proviso of the sub section (1) provides for the relaxation that if the shortfall in the advance tax instalment or the failure to pay the same on time is on account of the income listed therein, no interest under section 234C shall be charged provided the assessee has paid full tax in subsequent advance tax instalments. These exclusions are: –

(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) income of the nature referred to in sub-section (1) of section 115BBDA.

Aforesaid relaxation is to insulate the taxpayers from payment of interest under section 234C of the Act in cases where accurate determination of advance tax liability is not possible due to the intrinsic nature of the income. Therefore, after considering various representations favourably, it is proposed to include dividend income in the above exclusion but not deemed dividend as per sub-clause (e) of clause (22) of section 2 of the Act.

This amendment will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years.

[Clause 53]

Text of the Relevant Clause of the Finance Bill 2021

Clause 53 of the Bill seeks to amend section 234C of the Income-tax Act relating to interest for deferment of advance tax.

The first proviso to sub-section (1) of the said section provides for categories of incomes for which there will be no charge of interest under the said section, in the event of failure to estimate such incomes resulting in a shortfall in the advance tax payments and tax due has been paid in the subsequent advance tax instalments.

It is proposed to substitute clause (d) of the first proviso to said sub-section to include dividend income along with capital gains therein, so as to provide that the interest under the said section shall not be applicable 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 dividend.

It is further proposed to insert Explanation 2 in the said sub-section to define the term “dividend”.

These amendments will take effect from lst April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.