Advance Tax Payment Due dates and Interest provisions for non payment

Taxpayers are required to pay income tax in advance if his or her tax liability during the financial year is expected to be Rs. 10, 000 or likely to exceed Rs. 10, 000 per year. Paying it in advance i.e. before the actual liability arises, is called advance tax. Which means, Assessee is required to pay tax in advance instead of paying it at the time of filing IT return.

Provisions of advance tax is applicable to all individuals, self employed persons, business man and corporate.

Tax deductions

Advance tax is calculated on the total estimated taxable income of the assessee after deducting all expenses required to generate such income and TDS deducted by other persons from the source of income.

If you are a salary employee and your net income tax liability after deduction of TDS is not likely to exceed 10, 000 rupees, then you are not liable to pay advance tax for the year. If you are expecting that the liability will be 10, 000 rupees or more, then you need to pay tax in advance. To avoid such things you can disclose your loss from house property and interest from bank account to your employer to consider it for TDS calculation.

All self employed persons whose IT liability is likely to exceed 10, 000 rupees after deducting TDS (as deducted by other persons from your source of income) need to pay advance tax to the IT department before the due dates as specified in the IT Act.

Who is eligible for Advance Tax

All assessees are liable if their expected income tax liability after deducting TDS if any is likely to be 10, 000 rupees or likely to exceed 10, 000 rupees at the end of the financial year. All assessee includes salary persons, self employed persons, business man, private limited companies and public limited companies.

If net tax payable for a financial year is more than 10,000, rupees, then you are required to pay it in instalments during that year itself instead of paying at the end of the year or while filing IT return.

In order to avoid penal interest, salary individuals are advised to assess their tax liability if they have worked for more than one employer during the financial year or they have other incomes not disclosed to employer.

A resident senior citizen aged 60 years or more will not be liable for advance tax if such senior citizen does not have any income chargeable under the head “profits and gains of business or profession”.

Due dates for payment of advance tax

As discussed above, advance tax is applicable to all assessee including corporate and non corporate.

Corporate means companies incorporated in India including a private limited company and a public limited company. Non corporate are other than companies which includes individual, partnership firm and HUF. Due dates for payment are same for all assessee.

Due dates Amount Payable on or before due dates
On or before 15th June of the financial year Not Less than 15% of total advance tax payable
On or Before 15th September Of the financial year Not less than 45% of the total advance tax payable as reduced by the amount paid in last installment
On or before 15th December Of the financial year Not less than 75% of the total advance tax payable as reduced by the amount paid upto 2nd installments
On or before 15th March Of the financial year 100% of the advance tax payable as reduced by the amount paid in last installments

If taxpayer has opted for presumptive taxation scheme

Amount payable as a percentage of actual tax liability Due date of instalments
Up to 100% On or before 31st March

If the last day for payment of advance tax installments is a day on which banks are not functioning or closed then you can make payments in the next following working day. In such type of cases, interest leviable for late payment of advance tax will not be charged – circular no 676 dated 14th January 1994.

How to pay advance tax

You can pay it in two ways;

  • Online payment
  • Manual Payment

Through online payment you need to fill out “challan no: 280” and deposit the money online by using your net banking account. While filling up the Challan no: 280 you need to enter following things correctly;

  • Chose either “0020” or “0021” based on your applicability
  • Enter your PAN number correctly
  • Chose assessment year as the year that is applicable for the financial year for which you are making payment
  • Under tax payment segment select “100-advance tax”
  • Select the bank name from where you want to make payment.

In manual payment you need to visit a bank and deposit it against your PAN number.

Interest on Late Payment of advance tax

If you have not paid advance tax before the due dates as mentioned above then you are liable to pay penal interest on such amount payable by you.

Interest under section 234B

If the assessee is liable to pay advance tax but failed to pay it or paid less than 90% of total liability payable then such assessee will be liable to pay simple interest @ 1% for every month or part of a month to IT department.

The period for which interest payable would be the period starting from 1st day of April next following such financial year to the date of determination of total income.

Interest under section 234C

If you are not paid advance tax as per the percentage mentioned above then you will be liable to pay penal interest of 1% (simple interest) per month on the defaulted amount for 3 months. If you have not paid such amount before 15th march then 1% would be payable for every month till the payment of final tax amount.

You may be charged with both interest amount under section 234B and 234C if you have not paid such amount before the respective date as mentioned under these sections.

If any capital gain arises after the due date of instalment payment then interest will not be applicable on tax payable on capital gain. However, such tax on capital gain has to be paid in advance in remaining instalments as applicable.

If after making payment of one or two installments, assessee wants to increase or decrease the amount of remaining installments of advance tax in accordance to the revised estimates of income then it can be done but interest for short payment of earlier installments are required to be paid.

How to calculate Advance tax

At the beginning of the financial year, you need to estimate your total taxable income for the whole year starting from 1st April to 31st March. If the tax liability for the estimated income is more than Rs. 10000, you need to pay advance tax on or before the due dates as mentioned above.

  • Step 1: Estimate your total income for the whole financial year
  • Step2: Calculate your IT liability based on the rates and provisions applicable to you
  • Step3: Deduct TDS amount as deducted from your source of income to arrive at your net liability
  • Step4: On the net amount you calculate surcharge and education cess as applicable to you
  • Step 5: Add step 4 and step 3 to arrive at your IT liability

If step 5 is equal or more than Rs. 10, 000 then you are liable for advance tax. If it is less than Rs. 10, 000 then no need to pay it.

If during the year you have paid advance tax more than your income tax liability then you can get refund for the extra amount paid. While filling your IT return you need to claim such refund.

In case of excess payment, assessee can claim refund from IT department by filling IT return for the year.

Table Showing the format to calculate advance tax liability

Sr. No. Particulars Amount in Rs.
1 Estimated income under all 5 heads XXX
2 Less: Carried forward losses XXX
3 Gross Total Income (1-2) XXX
4 Less: IT deductions (chapter VIA) XXX
5 Estimated total income (3-4) XXX
6 Tax (based on present rates of the year) XXX
7 Add: Surcharge XXX
8 Total tax payable (6+7) XXX
9 Relief u/s 89 XXX
10 Tax liability  (8-9) XXX
11 Education and SHEC Cess (3% on Sr. No. 10) XXX
12 Total Tax liability (10+11) XXX
13 Less: Relief u/s 90, 90A, 91 if applicable XXX
14 Less: MAT credit if applicable XXX
15 Less: TDS XXX
16 Advance Tax Payable (12-13-14-15) XXX

After making payment of your tax in advance, you need to keep the proof of such payment safely as at the year end if required you need to prove that you already made the payment.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.