Are your advance tax payments on course?

December 15, the deadline for payment of the next instalment of advance tax, is fast approaching. Whether you paid or didn’t pay your advance tax instalments in June and September earlier this year, if you spend a bit of time and meet your advance tax liabilities, you could save sums shelled out as interest later on, when you file your returns.

While the deadline for filing of income tax returns arises only in the financial year following the financial year for which assessment is done, this does not exactly apply for tax payments.

Income tax law proposes that taxpayers pay income tax on instalments throughout the year, as and when income is earned, instead of one lump-sum payment at the time of filing returns. This phenomenon, as we know, is called advance tax and is required to be paid via four instalments during the financial year.

Advance tax

Taxman calls for all assessees whose tax liability, after including income from all sources and deducting all eligible deductions and TDS / TCS, in a financial year exceeds ₹9,999, to pay advance tax on such tax liability.

Such taxpayers are expected to pay 15 per cent of the income-tax liability that is estimated to be paid on income earned in a FY, as advance tax by June 15 of the same FY. By September 15, this number rises to 45 per cent and to 75 per cent by December 15. By March 15, the entire estimated tax liability is to be paid.

Assuming an estimated tax liability of ₹10,000 for FY25, ₹1,500 is to be paid by June 15, 2024, as advance tax. An additional ₹3,000 is to be paid by September 15, which adds up to 45 per cent of the estimated liability. Another ₹3,000 is to be paid by December 15, while the remaining liability of ₹2,500 is to be settled by March 15, 2025.

However, exceptions exist as follows – One, senior citizens (age of 60 or more) who do not have income from business or profession, are exempted from advance tax. Two, businesses and professionals, opting for presumptive taxation, have the option to pay their advance tax in one instalment on or before March 15.

Changes to the estimated tax liability

Any additional income earned, or losses incurred during the year can be adjusted for and advance tax recalculated and settled accordingly. This is why most estimates go haywire. Any loss incurred or income lower than anticipated is harmless, as tax paid in excess could easily be claimed as a refund or adjusted against future tax payments. On the flip side, when you earn any additional income over your estimates, not adjusting for it in your advance tax calculations will result in interest charged on your tax liability.

For salaried taxpayers, this process would be largely taken care of by the employer and the employees would typically need to disclose all incomes, and file a declaration choosing the tax regime and the probable tax eligible deductions, she/ he is planning for. For other assessees, advance tax will have to be paid via the income tax website akin to self-assessment tax.

Consequences of short payment

Section 234B of the Income Tax Act talks about interest for defaults in payment of advance tax. If advance tax paid is less than 90 per cent of assessed tax by March 31, simple interest at the rate of 1 per cent per month or part thereof is payable. The same accrues from April 1 of the succeeding financial year till the time of filing your IT return.

Section 234C, in addition, also prescribes for simple Interest at 1 per cent per month or part thereof, if there is a shortfall from the prescribed amount of advance tax liability to be paid on June 15, September 15 and December 15, for a period of three months — till the next due is paid. If the entire tax liability is not paid by March 15, interest is charged on the net amount of shortfall as on March 15, till March 31 (as 234B picks up from April 1).

But if at least 12 per cent and 36 per cent of the entire tax liability is paid by June 15 and September 15 respectively, no interest is charged. However, there are no such relaxations for the third instalment and the fourth instalment.

Also, if the shortfall is on account of capital gains, dividend income, winnings from any games or gambling or betting, or income accruing for the first time under the head profits and gains from business or profession, and if such shortfall and the entire tax due is settled before March 15, interest under section 234C is not applicable.

Check your liability

For individual taxpayers, it is never easy to calculate all this on your own. Most times, when filing returns through tax consultants or online intermediaries, you could even unknowingly be paying interest under 234B/C for shortfall in advance tax payments, unless you take a thorough look at your IT return. To optimise your tax outgo for this year, approach your online/offline tax consultant right away to check if you need to pay advance tax.