Advance Tax: Who Pays, When, and How Interest Adds Up
Advance tax is the "pay as you earn" side of income tax. If your liability for the year exceeds ₹10,000 after TDS, you are expected to pay it through the year rather than at the end — and interest applies if you do not.
Who has to pay
Anyone — salaried, self-employed, business or company — whose estimated tax liability for the year, after reducing TDS and TCS, exceeds ₹10,000.
Salaried employees usually fall outside it, because employer TDS covers their liability. That changes the moment you have income your employer does not know about: interest income, capital gains, rental income, freelance receipts or dividends. This is the most common way a salaried taxpayer ends up owing advance tax without realising.
Resident senior citizens aged 60 or above with no income from business or profession are exempt from advance tax altogether.
The instalment schedule
| Due date | Cumulative amount payable | |---|---| | 15 June | 15% of estimated liability | | 15 September | 45% | | 15 December | 75% | | 15 March | 100% |
The percentages are cumulative, not incremental — by 15 September you should have paid 45% in total, not 45% more.
Taxpayers declaring income under the presumptive provisions of Section 44AD or 44ADA pay in a single instalment by 15 March.
How the interest works
Section 234C penalises shortfalls in individual instalments. Interest runs at 1% per month for three months on each instalment that fell short, computed instalment by instalment. There is a tolerance: no interest if you have paid at least 12% by the first due date and 36% by the second.
Section 234B applies where total advance tax paid through the year is less than 90% of the assessed liability. Interest runs at 1% per month from 1 April of the assessment year until the tax is paid — so it keeps accruing until you actually settle.
These stack. A taxpayer who paid nothing through the year and settles in July faces both.
Capital gains are treated fairly
You cannot forecast a capital gain in June that occurs in November. The law accepts this: where the shortfall arises from capital gains or certain other unforeseeable income, no 234C interest applies provided you pay the tax on it in the remaining instalments — or by 31 March if it arises after the final due date.
The relief is conditional on prompt payment, not automatic.
Practical points
- Estimate in June and revise in December. A single estimate made in June and never revisited is how shortfalls happen.
- Pay by challan ITNS 280, selecting "Advance Tax (100)" — not "Self Assessment Tax (300)". Choosing the wrong code creates reconciliation problems in Form 26AS.
- Check 26AS and AIS before each instalment so you are crediting TDS already deducted rather than paying twice.
- Tax paid after 31 March is self-assessment tax, not advance tax. It stops 234B accruing further but does not undo what has accrued.
Want your advance tax estimated properly before the next due date? Talk to Kunal P Shah & Co.