Higher interest shocks taxpayers as Income Tax system flags 234B, 234C charges

Tax demands

• Taxpayers report higher interest under Sections 234B and 234C than expected
• CPC system may overlook capital gains dates, leading to excess interest charges.
• Breakdown of capital gains in ITR can fix interest calculation errors.

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Several taxpayers are finding higher interest calculations under Sections 234C and 234B in their income tax intimations than what they had computed while paying advance tax. Tax experts say the tax processing system appears to be ignoring when the capital gains actually occurred. Instead, it is treating the gains as if they existed from the start of the financial year and charging interest for all advance tax instalments.

For most salaried individuals, advance tax is largely handled by the employer through Tax Deducted at Source (TDS). However, for income that is not covered by TDS, such as capital gains from selling shares or mutual funds, one is required to pay advance tax in instalments during the financial year. Failing to do so lead to additional interest charges under Sections 234B and 234C of the Income Tax Act.

"Under the scheme of Section 234C, interest for deferment of advance tax is not applicable on income which arises after the due dates of advance tax instalments. The law clearly provides that if tax on such income is paid in the remaining instalment(s) or by 31st March, interest under Section 234C should be computed only from the date of such transaction and not from the beginning of the financial year," said Himank Singla, founding partner at SBHS & Associates.

However, CPC’s processing system appears to be ignoring the date of accrual of capital gains altogether. Instead, it is treating capital gains as if they existed from 1st April of the relevant financial year and is computing 234C interest for all advance tax instalments, thereby levying interest retrospectively on income that had not even arisen at that time, added Singla.

Another expert says the non-availability of proper data can be the other reason for tax demands.

“While filing the ITR, the taxpayer is required to provide a proper break-up of (a) capital gain in Schedule CG (Information about accrual/receipt of capital gain) (b) dividend in Schedule IFOS, so that CPC while processing the ITR does not levy interest for the instalments where capital gain/dividend not accrued/received,” said Gopal Bohra, Partner -Tax N.A.Shah Associates.

If the taxpayer, while filing the ITR, did not provide the proper breakup of capital gain or dividend accrued/received in Schedule CG or IFOS of ITR and CPC levied interest under section 234C, the taxpayer can file a rectified ITR under section 154 providing proper break-up in response to intimation under section 143(1) to correct the levy of interest, explained Bohra.

Recent complaints on X (formerly Twitter) highlight the ongoing problem:

• Jay Matoliya (@Jay_Matoliya) on January 7, 2026: Shared that after ITR processing, CPC increased interest under Section 234C despite same income and tax paid, advising taxpayers to recheck intimations carefully.

FINALLY… ITR PROCESSED ✅

But wait 👀 CPC has increased interest under Section 234C compared to their earlier calculation. Same income. Same tax paid. Different interest amount. 🤷‍♂️ If you’ve received your ITR Intimation, 👉 recheck 234A / 234B / 234C carefully before… pic.twitter.com/3gPEd9F4Ul — Jay Matoliya 🐂 (@Jay_Matoliya) January 7, 2026

R Loganathan (@lacaindia) on January 7, 2026: Noted wrong interest calculations under 234B & C in intimations, including full-year 234C for 44AD cases and interest up to processing date for belated returns.

@IncomeTaxIndia Please note that CPC is computing interest under Section 234C incorrectly in cases where Income from capital gains is declared. — CA Ameetkumar Jain - APJ 🇮🇳 (@AmeetkumarJain) January 7, 2026

What is Section 234C and 234 B?

Section 234B: A taxpayer is required to pay at least 90 percent of total tax by the end of the financial year, otherwise 1 percent interest is charged every month on whatever’s unpaid, from April until the day a taxpayer finally clears it.

Section 234C: The section 234C imposes a penalty of 1 percent per month for any deferment or shortfall in the payment of advance tax instalments. The tax department has fixed four dates to pay advance tax: June, September, December, and March.

By 15th June: at least 15 percent of total tax liability

By 15th September: 45 percent in total

By 15th December: 75 percent in total

By 15th March: 100 percent of total tax liability

Other issues include charging 234C for the full year in presumptive taxation cases under Section 44AD. “In cases covered under presumptive taxation under Section 44AD, CPC is levying interest under Section 234C for all four advance tax instalments. This completely disregards the specific legal position that assessees opting for Section 44AD are required to pay advance tax in a single instalment on or before 15th March, Singla said.

Similarly, in updated returns (ITR-U under Section 139(8A)), interest calculated up to the processing date instead of filing date. "In belated return cases, a further error is being observed under Section 234B. Interest is being calculated up to the date of processing of the return under Section 143(1) rather than up to the actual date of tax payment, even though the assessee has already paid the self-assessment tax along with interest as computed by the department’s own return utility," said Singla.

Steps to pay advance tax online

• Go to the official income tax e-filing website.

• On the homepage, click on ‘e-Pay Tax’ available under Quick Links, or locate it using the search option.

• Enter your PAN and mobile number, then validate the login using the OTP sent to your phone.

• Select Income Tax as the tax type, choose Assessment Year 2024-25, and pick Advance Tax (100) as the payment category.

• Carefully enter the applicable tax amount and other required details.

• Select your preferred bank and continue to the payment gateway.

• Verify all details before making the payment and keep the challan acknowledgement safely for records.