Advance Tax in India: Who Pays, Due Dates and Penalties

Advance tax is income tax paid during the financial year instead of in a lump sum at the end. If your total tax liability after TDS and TCS is ₹10,000 or more, you generally need to pay it in four instalments. Salaried employees often assume their employer's TDS covers everything, but income from rent, fixed deposits, capital gains or freelancing can create a shortfall.

This guide explains who needs to pay, how each instalment is calculated, what happens if you miss one, and how to avoid interest under Sections 234B and 234C.

Who has to pay advance tax?

Any taxpayer whose estimated tax liability for the year, after subtracting TDS and TCS, is ₹10,000 or more must pay advance tax. This includes salaried employees with additional income, freelancers, business owners, landlords, investors with capital gains and anyone earning interest, dividends or cryptocurrency gains.

Resident senior citizens who do not have income from a business or profession are exempt from advance tax. They can pay their tax after the year ends. Everyone else, including senior citizens with business income, should check the requirement.

• Salary income where TDS is insufficient because of multiple employers or additional income.
• Rental income after the standard 30% deduction and home loan interest.
• Interest from fixed deposits, savings accounts and bonds.
• Capital gains from shares, mutual funds or property.
• Freelance, consulting or business income.
• Dividends and cryptocurrency gains.
• Foreign income or assets.

The four instalment dates

The percentages are cumulative. If your liability is ₹1,00,000, you should have paid ₹15,000 by June, ₹45,000 by September, ₹75,000 by December and ₹1,00,000 by March. In September, the instalment is ₹30,000, not ₹45,000 on top of the June payment.

Taxpayers covered by the presumptive scheme under Section 44AD (business) or 44ADA (professionals) can pay 100% of the advance tax by 15 March. They do not need to pay the earlier instalments, but they must meet the 15 March deadline.

How to calculate advance tax

1. Estimate your total income for the year from salary, rent, business, capital gains, interest and other sources.
2. Choose the tax regime that applies to you and compute tax on the estimated income.
3. Subtract TDS, TCS and any relief or credit available.
4. Add surcharge and cess as applicable.
5. Subtract the advance tax already paid.
6. Pay the balance due by the next instalment date.

Estimates change during the year, so revisit the calculation before each instalment. A bonus, a property sale or a large capital gain can push you into a higher slab. Paying the additional tax in the next instalment is better than waiting until filing.

The target is 15%, 45%, 75% and 100% of ₹1,50,000, the balance after TDS. The amount to pay each time is the difference from what you have already paid. Use the advance tax calculator to build your own schedule.

Interest under Section 234B

Section 234B applies when you have paid less than 90% of the assessed tax by the end of the financial year. Interest is 1% per month or part of a month from 1 April of the assessment year until the date you pay. The assessed tax is the tax on your total income minus TDS, TCS and relief.

For example, if your assessed tax is ₹2,00,000 and you paid ₹1,50,000 as advance tax, the shortfall is ₹50,000. If you pay it in September, interest under Section 234B could apply for about six months, or roughly ₹3,000, subject to the exact dates.

Interest under Section 234C

Section 234C charges interest for deferring an instalment. If you pay less than the required cumulative percentage on a due date, interest is 1% per month for three months on the shortfall. For the March instalment, interest is 1% for one month.

There are reliefs for income that arises after an instalment date, such as capital gains or dividends. If the income arises after the 15th of the last month of an instalment, you may not owe 234C interest if you pay the tax by the next instalment. The rules are specific; keep the transaction dates and challans.

How to pay advance tax

1. Log in to the income-tax e-filing portal or your bank's net banking.
2. Select Challan 280 and choose the assessment year.
3. Select 'Advance Tax' as the type of payment and the correct minor head.
4. Enter the tax, surcharge, cess and total amount.
5. Pay and save the challan receipt with the BSR code and date.
6. Report the payments in your ITR and reconcile with Form 26AS.

Keep every challan. If you pay through multiple banks, the credits should appear in Form 26AS and the Annual Information Statement. A missing credit is easier to fix with a receipt than after the return is processed.

What if you pay too much?

Excess advance tax is refunded when you file your return. The department may pay interest under Section 244A at 0.5% per month or part of a month on the refund, subject to the rules. You can also adjust the excess against the next year's liability if you file the return on time.

Common mistakes

• Assuming salary TDS covers interest, rent or capital gains.
• Missing the 15 March instalment because you plan to pay at filing.
• Applying the instalment percentages as additional amounts rather than cumulative.
• Forgetting to add surcharge and cess to the estimate.
• Not revising the estimate after a bonus, property sale or large gain.
• Paying under the wrong assessment year or minor head.
• Ignoring the presumptive scheme's 15 March deadline.

Bottom line

Advance tax is a cash-flow exercise, not a separate tax. If you estimate your income, subtract TDS and pay the cumulative percentages on time, you avoid interest and a large bill at filing. Revisit the estimate whenever your income changes, and keep the challans safe.