Advance Tax: The Four Instalments and the Interest for Missing Them
Rohit Menon
· Founder & Product Architect· 3 min read
Salaried employees rarely think about advance tax because TDS handles it. Add freelance income, capital gains or rental income and the obligation appears, along with two sections of interest that are easy to incur and impossible to argue away.
- ✓Payable where tax after TDS exceeds ₹10,000 in the year.
- ✓Four instalments: 15 per cent, 45, 75 and 100 by 15 June, September, December and March.
- ✓Section 234C charges interest for shortfall in any instalment.
- ✓Senior citizens without business income are exempt.
The schedule
1. By 15 June: fifteen per cent of estimated liability.
2. By 15 September: forty-five per cent, cumulative.
3. By 15 December: seventy-five per cent, cumulative.
4. By 15 March: one hundred per cent.
Taxpayers under the presumptive scheme of Section 44AD or 44ADA pay the whole amount in a single instalment by 15 March.
The two interest sections
Section 234C charges one per cent a month for three months on the shortfall in each of the first three instalments, and one per cent for one month on the final one. It applies instalment by instalment.
Section 234B charges one per cent a month from April of the assessment year until the tax is paid, where less than ninety per cent of the liability was paid as advance tax. The two can apply together.
Capital gains and the relief
Capital gains cannot be estimated in advance. The proviso to Section 234C provides that where a shortfall arises from capital gains, or from winnings, or from certain dividend income, no interest is charged provided the tax is paid in the remaining instalments or by 31 March.
This relief is specific. It does not extend to business income that turned out higher than estimated.
Who is exempt
A resident senior citizen — aged sixty or above during the year — with no income chargeable under the head profits and gains of business or profession is not liable to pay advance tax at all.
Everyone else with a liability above ten thousand rupees after TDS is liable, including salaried employees with substantial other income.
Frequently asked questions
### Who must pay advance tax?
Any taxpayer whose tax liability after TDS and TCS exceeds ten thousand rupees in a financial year. Resident senior citizens without business or professional income are exempt.
### What is the interest for late advance tax?
Section 234C charges one per cent a month on shortfalls in each instalment, and Section 234B charges one per cent a month from April of the assessment year where less than ninety per cent was paid in advance. Both can apply to the same year.
### What if I could not estimate capital gains in advance?
The proviso to Section 234C waives interest on shortfalls arising from capital gains, provided the tax on them is paid in the remaining instalments or by 31 March. The relief does not extend to underestimated business income.
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Frequently Asked Questions
Who must pay advance tax?
Any taxpayer whose tax liability after TDS and TCS exceeds ten thousand rupees in a financial year. Resident senior citizens without business or professional income are exempt.
What is the interest for late advance tax?
Section 234C charges one per cent a month on shortfalls in each instalment, and Section 234B charges one per cent a month from April of the assessment year where less than ninety per cent was paid in advance. Both can apply to the same year.
What if I could not estimate capital gains in advance?
The proviso to Section 234C waives interest on shortfalls arising from capital gains, provided the tax on them is paid in the remaining instalments or by 31 March. The relief does not extend to underestimated business income.
Rohit Menon
Founder & Product ArchitectArchitecting business document operating systems and automated billing workflows for Indian SMBs, agencies, and enterprises.