Advance Tax: Due Dates, Computation & Interest for Non-Payment

Who Is Liable to Pay Advance Tax?

The obligation to pay advance tax under the Income Tax Act arises for every person — whether an individual, Hindu Undivided Family (HUF), firm, company, association of persons (AOP), body of individuals (BOI), or any other assessee — whose estimated tax liability for the financial year, after reducing tax deducted at source (TDS) and tax collected at source (TCS), is Rs 10,000 or more. This threshold is specified under Section 208 of the Act.

It is important to understand that the term “estimated tax liability” refers to the total income tax payable on the total income of the year, minus any TDS/TCS credits and relief under Sections 90, 90A, and 91. If the net figure exceeds Rs 10,000, the assessee becomes liable to pay advance tax.

Exemptions from Advance Tax

A significant exemption is provided under Section 207 for resident senior citizens. Any individual who is resident in India, is of the age of 60 years or more during the relevant financial year, and does not have any income chargeable under the head “Profits and gains of business or profession” is not required to pay advance tax. This means that salaried senior citizens, or those earning only from interest, rent, capital gains, or other sources, are exempt from this obligation — their entire tax liability can be discharged at the time of filing the return.

However, if a senior citizen carries on a business or profession — even a small consultancy or freelance practice — the exemption under Section 207 is lost, and the full advance tax regime applies. We have seen many retired professionals overlook this distinction, leading to avoidable interest charges.

Presumptive Taxation Assessees

Assessees opting for the presumptive taxation scheme under Section 44AD (businesses with turnover up to Rs 2 crore) or Section 44ADA (professionals with gross receipts up to Rs 50 lakh) enjoy a simplified advance tax regime. They are required to pay 100% of their advance tax liability in a single instalment on or before 15 March of the financial year. This means they do not need to follow the quarterly instalment schedule applicable to other assessees. If they fail to pay by 15 March, interest under Section 234C is attracted.

Advance Tax Due Dates and Instalment Schedule

The instalment schedule for advance tax is prescribed under Section 211 of the Income Tax Act. The schedule differs for corporate assessees and non-corporate assessees, though the due dates remain the same. The current schedule, applicable from Assessment Year 2017-18 onwards, is as follows:

Instalment Schedule for All Assessees (Other Than Presumptive Income Cases)

If the due date falls on a Sunday or a public holiday, the payment must be made on the immediately preceding working day. The Income Tax Department does not grant any extension for advance tax due dates, unlike the return filing deadlines which are sometimes extended.

Instalment Schedule for Presumptive Income Assessees

Assessees computing income on a presumptive basis under Section 44AD, 44ADA, or 44AE are required to pay the entire advance tax in a single instalment on or before 15 March. There is no requirement to pay the first three instalments. This simplification recognises that small business owners and professionals may not have the infrastructure to compute and pay quarterly taxes.

How to Compute Advance Tax

The computation of advance tax requires the assessee to estimate their total income for the financial year and then compute the tax payable thereon. The steps involved are as follows:

Step 1: Estimate Total Income

The assessee must estimate their income from all heads — salary, house property, business or profession, capital gains, and other sources. This estimation should be as accurate as possible, though the law recognises that it is inherently an estimate and some variation from the final assessed income is expected.

Step 2: Compute Tax on Estimated Income

Apply the applicable tax rates (including surcharge and health and education cess) to the estimated total income. For individuals, the tax rates depend on whether they have opted for the old regime or the new regime under Section 115BAC. For companies, the applicable rate depends on turnover and whether they have opted for concessional rates under Section 115BAA or 115BAB.

Step 3: Reduce TDS/TCS Credits

Deduct the estimated TDS that will be deducted from the income during the year, and any TCS collected. The balance represents the advance tax payable. If this balance exceeds Rs 10,000, advance tax must be paid.

Step 4: Compute Instalment Amounts

Divide the net advance tax payable into the quarterly instalments as per the percentages prescribed under Section 211. The assessee is free to pay more than the minimum prescribed percentage in any instalment.

Handling Capital Gains and Lottery Income

Section 234C provides a specific relaxation for capital gains and income of a casual nature (lottery winnings, etc.). Since these incomes arise on specific dates and cannot be estimated in advance, if the assessee has not included such income in the estimate for earlier instalments, no interest under Section 234C is levied for those instalments. The assessee is required to pay advance tax on such income in the remaining instalments, or, if the income arises after 15 March, the tax can be paid by 31 March of the financial year.

Interest for Default in Payment of Advance Tax — Section 234B

Section 234B applies when an assessee who is liable to pay advance tax either fails to pay it entirely or pays less than 90% of the assessed tax (i.e., the tax computed on regular assessment). The interest is computed as follows:

• Rate: 1% per month or part of a month (simple interest).
• Period: From 1 April of the assessment year to the date of determination of total income under Section 143(1) (intimation) or Section 143(3) (regular assessment).
• Amount on which interest is computed: The difference between the assessed tax and the advance tax actually paid. “Assessed tax” for this purpose means the tax on total income as determined on regular assessment, minus TDS/TCS credits.

It is critical to note that interest under Section 234B is mandatory — it is not a penalty that the Assessing Officer has discretion to waive. The computation is done by the CPC (Centralised Processing Centre) at the time of processing the return, and the interest is included in the demand raised or adjusted against the refund.

Practical Illustration — Section 234B

Consider an assessee whose assessed tax for AY 2026-27 is Rs 5,00,000. If the assessee paid advance tax of Rs 4,00,000 (i.e., 80% of assessed tax), which is less than 90% (Rs 4,50,000), interest under Section 234B applies. The shortfall is Rs 1,00,000 (Rs 5,00,000 minus Rs 4,00,000). If the return is filed on 31 July 2026, interest is levied from 1 April 2026 to 31 July 2026 — 4 months. Interest = Rs 1,00,000 x 1% x 4 = Rs 4,000.

Interest for Deferment of Advance Tax Instalments — Section 234C

Section 234C applies when an assessee pays advance tax but does not adhere to the prescribed quarterly instalment schedule. The interest is levied on the shortfall in each instalment, computed as follows:

For Instalments Due on 15 June, 15 September, and 15 December

If the advance tax paid by the due date is less than the prescribed percentage of the estimated tax (15%, 45%, or 75% respectively), interest at 1% per month is levied on the shortfall for a period of 3 months. For instance, if 12% is paid by 15 June instead of 15%, interest under Section 234C is levied on the shortfall of 3% for 3 months.

For the Instalment Due on 15 March

If the advance tax paid by 15 March is less than 100% of the estimated tax, interest at 1% per month is levied on the shortfall for 1 month.

Section 234C — Practical Illustration

Suppose an assessee’s total advance tax liability is Rs 4,00,000. The required and actual payments are:

Total interest under Section 234C = Rs 600 + Rs 600 = Rs 1,200.

Advance Tax Payment Procedure

Advance tax is paid using Challan No. ITNS 280, which can be submitted either online through the Income Tax Department’s e-filing portal or through authorised bank branches. The online payment is now the preferred mode and can be made through net banking, debit card, or through the payment gateway integrated with the e-filing portal.

Steps for Online Payment

1. Log in to the e-filing portal at eportal.incometax.gov.in.
2. Navigate to “e-Pay Tax” under the “e-File” menu.
3. Select Challan No. ITNS 280.
4. Choose “Tax Applicable” as “(0021) Income Tax (Other than Companies)” or “(0020) Corporation Tax” as applicable.
5. Select “Type of Payment” as “(100) Advance Tax”.
6. Enter the assessment year (e.g., 2027-28 for FY 2026-27).
7. Enter the amount and complete the payment through net banking or the payment gateway.
8. Save the challan receipt (BSR code, challan serial number, and date of payment) for future reference.

We strongly advise our clients to maintain a systematic record of all advance tax challans, as these details are required while filing the income tax return and are also necessary if any discrepancy arises during processing.

Common Mistakes in Advance Tax Payment

In our practice, we have observed several recurring mistakes that assessees make while paying advance tax:

1. Incorrect Assessment Year

The most common error is selecting the wrong assessment year on the challan. Advance tax for FY 2026-27 must be paid against AY 2027-28. If the wrong year is selected, the payment will not reflect in the correct assessment year, leading to demand notices and interest charges. While the error can be corrected by filing a challan correction request, the process is time-consuming.

2. Ignoring Revised Estimates

Many assessees estimate their income at the beginning of the year and pay advance tax based on that initial estimate without revising it. If income increases substantially during the year — for example, due to a capital gain in December — the assessee must revise the estimate and increase the subsequent instalment payments. Failure to do so results in interest under Section 234C.

3. Not Accounting for TDS Credits

Some assessees pay advance tax on the gross tax liability without reducing TDS credits, leading to overpayment. While overpaid tax is refundable, the refund process takes time and the interest paid on refunds (under Section 244A) is lower than the opportunity cost of funds.

4. Missing the 15 March Deadline

There is a common misconception that advance tax can be paid up to 31 March. While the financial year ends on 31 March, the last instalment of advance tax is due on 15 March. Any payment made between 16 March and 31 March is treated as advance tax but attracts interest under Section 234C for the shortfall as on 15 March.

Advance Tax and the New Tax Regime

With the introduction of the new tax regime under Section 115BAC (as amended by the Finance Act 2023), many assessees have shifted to the concessional rate structure. The advance tax provisions apply equally under both regimes. However, the computation differs because the new regime does not permit most deductions and exemptions (such as Section 80C, 80D, HRA exemption, etc.). Assessees must carefully determine which regime they will opt for before computing their advance tax liability.

For salaried individuals, the choice of regime is communicated to the employer for TDS purposes. If the employer deducts TDS under the new regime and the resultant TDS is sufficient to cover the tax liability, no advance tax is required. However, if the individual has significant other income (rental income, capital gains, interest income), advance tax may still be necessary.

For more information on income tax appeals and disputes, visit our Income Tax Appeal page.

Advance Tax for Companies

Companies are subject to the same advance tax instalment schedule as other assessees. However, there are certain company-specific considerations:

• MAT (Minimum Alternate Tax): Companies liable to pay MAT under Section 115JB must compute advance tax based on the MAT liability if the regular tax liability is lower than MAT.
• Concessional Rates: Companies that have opted for the concessional rate under Section 115BAA (22% + surcharge + cess) or Section 115BAB (15% for new manufacturing companies) must compute advance tax at the concessional rate.
• Dividend Distribution: Since the abolition of Dividend Distribution Tax (DDT) from AY 2021-22, dividends are taxable in the hands of shareholders. Companies distributing dividends must deduct TDS under Section 194, and shareholders must include dividend income in their advance tax computation.

Refund of Excess Advance Tax

If the advance tax paid exceeds the assessed tax liability, the excess is refundable. The refund is processed when the income tax return is filed and assessed. Interest on the refund is payable under Section 244A at the rate of 0.5% per month from 1 April of the assessment year (or the date of payment of tax, whichever is later) to the date of grant of refund.

We recommend that assessees file their returns promptly to expedite the refund process. Returns processed under Section 143(1) at the CPC typically result in faster refunds than those selected for scrutiny under Section 143(3). For assistance with your tax filing, contact our team.

Judicial Pronouncements on Advance Tax Interest

Several important judicial decisions have shaped the interpretation of Sections 234B and 234C:

• CIT v. Pranoy Roy (2009) — Supreme Court: The Court held that interest under Section 234B is compensatory in nature and is mandatory. The Assessing Officer has no discretion to waive or reduce it.
• Joint CIT v. Rolta India Ltd (2011) — Supreme Court: The Court clarified that when computing interest under Section 234B, the assessed tax must be reduced by MAT credit under Section 115JAA.
• Interest on Revised Returns: When a revised return is filed showing higher income, interest under Section 234B is recomputed based on the revised assessed tax. The period of levy, however, continues from 1 April of the assessment year.

For a deeper understanding of income tax dispute resolution, see our article on responding to income tax notices.

Advance Tax Planning Strategies

Effective advance tax planning can help assessees minimise interest liability and optimise cash flows. We recommend the following strategies:

1. Regular Income Monitoring

Review income estimates quarterly, especially before each instalment due date. Adjust the instalment amount based on actual income earned up to that point and projected income for the remainder of the year.

2. Tax-Saving Investments Before 15 March

If deductions under Section 80C, 80D, or other provisions are yet to be claimed, make the investments before 15 March so that the advance tax computation reflects the reduced tax liability. This prevents overpayment of the last instalment.

3. Claim TDS Credits Promptly

Ensure that all TDS deducted is reflected in Form 26AS and the Annual Information Statement (AIS). Any mismatch should be rectified with the deductor before the advance tax computation, so that the TDS credit is accurately factored in.

4. Use the Capital Gains Relaxation

As mentioned earlier, Section 234C provides a relaxation for capital gains. If a capital gain arises after 15 September, do not panic about the earlier missed instalments — the law permits you to pay the tax on such gains in the subsequent instalment without interest for the earlier period.

You may also wish to read our guide on tax audit under Section 44AB and our article on income tax penalty provisions for related insights.

Frequently Asked Questions

1. What happens if I miss the 15 June advance tax instalment?

If you miss the first instalment due on 15 June, interest under Section 234C is levied at 1% per month on the shortfall for 3 months. For example, if you should have paid Rs 60,000 (15% of Rs 4,00,000) but paid nothing, interest of Rs 60,000 x 1% x 3 = Rs 1,800 is charged. You should make up the shortfall along with the second instalment on 15 September.

2. Can I pay the entire advance tax in the first instalment itself?

Yes, there is no restriction on paying more than the prescribed percentage in any instalment. If you pay 100% of your estimated tax liability by 15 June, you will not face any interest under Section 234C. However, if your actual tax liability on assessment turns out to be higher (perhaps due to income earned later in the year), you would still need to pay the balance before 31 March to avoid interest under Section 234B.

3. Is advance tax applicable to salaried individuals?

For most salaried individuals, the employer deducts TDS on salary, which covers the tax liability. However, if a salaried person has significant other income — such as rental income, capital gains, fixed deposit interest, or freelance income — and the total tax liability after TDS exceeds Rs 10,000, advance tax must be paid on the balance amount.

4. How is advance tax affected by a change in the tax regime mid-year?

For salaried individuals, the choice between the old and new regime for TDS purposes can be communicated to the employer. However, the final choice is made at the time of filing the return. If you switch regimes, your advance tax computation will need to be revised accordingly. Any excess or shortfall will be adjusted at the time of return filing, with interest under Section 234B applicable if there is a shortfall.

5. Can interest under Section 234B or 234C be waived?

Interest under Sections 234B and 234C is mandatory and compensatory in nature. Neither the Assessing Officer nor the CIT (Appeals) has the power to waive it. However, in specific circumstances, the CBDT can issue directions under Section 119(2)(a) to waive or reduce interest in cases of genuine hardship. Such waivers are rare and require a formal application to the Principal Chief Commissioner or Chief Commissioner of Income Tax, as per CBDT circulars and notifications.

6. What is the penalty for not paying advance tax at all?

There is no separate “penalty” for non-payment of advance tax. The consequence is interest under Sections 234B and 234C, which is compensatory in nature. However, if the income is concealed or inaccurate particulars are furnished, separate penalties under Section 270A may apply. The non-payment of advance tax itself does not trigger a penalty proceeding, but the interest charges can be substantial for large shortfalls.

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