Calculation of interest @1% per month on shortfall of prescribed advance tax instalments is governed by section 234C. Proviso to sub section (1) states that no interest will be levied if the shortfall is due to capital gains, dividends, lottery incomes etc. if the person has deposited full tax due before 31st March of the financial year. For precise reading and interpretation section 234C may be read.
Section 234C charges 1% simple interest per month (for 3 months for the first three instalments and 1 month for the last) on any shortfall in advance tax instalments. However, shortfall caused by unexpected gains (such as capital gains or dividend income) is fully exempt from 234C interest if the full tax liability on such income is deposited before 31st March of the respective financial year.
Now that IT is claiming to be moving towards digital age, it looks silly and extra punishable to charge interest for 3 months for delay of even one day. This needs to be urgently reviewed to ’ number of days delay’. This will be another step towards respecting the tax payer instead of fleecing him.