As the deadline for paying the third instalment of advance tax is December 15, taxpayers must review their tax liability. Those benefiting from deferred payments must track their timing of income to remain compliant.
All taxpayers whose estimated tax liability, after reducing TDS/TCS, is more than Rs 10,000 are required to pay advance tax. By December 15, 75% of the total tax liability must be paid in advance.
The Section 234C of the Income Tax Act deals with interest for deferment of advance tax instalments.
“If the taxpayer fails to pay the required percentages of advance tax by the quarterly due dates, the shortfall attracts interest at 1% per month for three months for the first three instalments, and 1% for one month for the March instalment,” says Neeraj Agarwala, partner, Nangia & Company.
Deferred payments
Income such as capital gains, lottery winnings, dividend income which cannot be estimated in advance is applicable for deferred advance tax. Taxpayers can pay the entire tax by March 31 without any interest.
In fact, Section 234C protects taxpayers by ensuring that no penal interest is charged for the shortfall attributable to unpredictable incomes, provided the tax on such income is paid promptly in the next due instalment.
The advance tax payment is made electronically using Challan ITNS-280 under the advance tax category.
The Section 234B of the Income Tax Act applies when the taxpayer has not paid at least 90% of the assessed tax by the end of the financial year. In such cases, interest at 1% per month is charged from April 1 of the assessment year until the date the remaining tax is fully paid. For example, for financial year FY2025–26, interest under Section 234B will apply from April 1, 2026 up to the date of payment.
Senior citizen who do not have income from business or profession are fully exempt from paying advance tax. They must ensure that TDS is properly deducted on their income.
Presumptive taxation
Taxpayers opting for presumptive taxation under sections 44AD or 44ADA of the Income Tax Act can pay the full advance tax amount in one single instalment on or before March 15 without attracting interest under Section 234C.
Those engaged in professions such as legal, medical, engineering, architecture, accountancy, etc., where the gross receipts or turnover is below `50 lakh in a financial year, are eligible for presumptive taxation.
“This simplifies compliance, as such taxpayers are not required to estimate quarterly income or maintain detailed books for instalment-wise calculations,” says Sandeep Sehgal, partner, tax, AKM Global, a tax and consulting firm.
For salaried taxpayers, even if TDS is deducted on salary income every month, they still have to pay advance tax for additional income such as rent, accrued income from deposits, dividends and capital gains which are not reported to the employer. In such cases, their actual tax liability may exceed the TDS deducted.
Paying the advance tax will ensure a complete and accurate matching of tax liability with all sources of income, not just salary.