A demand notice that looks too large is usually not a wrong tax computation. It is three separate interest charges running at 1% a month each, and they can all apply to the same year at the same time.
Three charges, three different triggers. Most demand notices are driven by only one of them.
You can pay every rupee of advance tax by 15 March and still owe 234C, because the Act wants it in four instalments: 15% by 15 June, 45% by 15 September, 75% by 15 December, 100% by 15 March. Interest runs at 1% a month for three months on each shortfall, and one month on the last. There is a tolerance built in — no interest if you have paid at least 12% by June or 36% by September — which is why the first two instalments are the most forgiving.
If your advance tax comes to less than 90% of the assessed tax, 234B charges 1% a month on the entire shortfall from 1 April of the assessment year until the tax is determined. Unlike 234C it does not stop after three months — it runs until the assessment, so a return processed eight months into the year carries eight months of interest. This is usually the largest line on a demand notice.
234A runs from the due date of filing to the date you actually file, at 1% a month on the unpaid tax. If you paid the tax on time but filed late, the base is small and so is the interest. If you did neither, all three sections stack on the same amount.
Section 234C carries a proviso: where the shortfall arises from capital gains, lottery winnings, or income from a business or profession that arose for the first time, no interest is charged provided the tax is paid in the remaining instalments, or by 31 March if the income arose after 15 March. A one-off property sale in December therefore should not attract 234C on the June and September instalments — but the computation only reflects that if it is claimed.
The calculator does the arithmetic. TaxSphere — our free case-law library, 1,184 authorities and the Act in full — has the judgments, the circulars and the statutory text for the same provision.
