Advance Tax and Interest
Liability to pay advance tax
As per section 208, every person whose estimated tax liability for the year is Rs. 10,000 or
more, shall pay his tax in advance, in the form of “advance tax”.
Person not liable to pay advance tax
As discussed above, every person whose estimated tax liability for the year is Rs. 10,000 or
more is liable to pay advance tax.
However, a resident senior citizen (i.e., an individual of the age of 60 years or above during
the relevant financial year) not having any income from business or profession is not liable to
pay advance tax.
Note: The assessee who declares its income under presumptive taxation scheme e.g. under
section 44AD or 44ADA they also need to pay advance tax.
Due Dates of Advance Tax
Provisions of section 211 of the Income Tax Act, 1961 specifies the installment of advance
tax and due dates thereon.
Following table reflects the advance tax due dates for individual and corporate taxpayers
[applicable for taxpayers other than assessee covered u/s 44AD(1) or u/s 44ADA(1)] –
ADVANCE TAX DUE DATES PERCENTAGE OF ADVANCE TAX
PAYABLE
On or before 15th June 15% of advance tax
On or before 15th September 45% of advance tax
On or before 15th December 75% of advance tax
On or before 15th March 100% of advance tax
Following table reflects the advance tax due dates for taxpayers who has opted for
presumptive taxation scheme – business income [section 44AD(1) or section 44ADA(1)]–
ADVANCE TAX DUE DATES PERCENTAGE OF ADVANCE TAX
PAYABLE
By 31st March 100% of advance tax
Note: Advance tax is to be paid on all incomes. Therefore, it is payable on capital gain also.
However, as the capital gain cannot be estimated in advance, advance tax is paid on all
capital gains when they arise in the immediately next advance tax due date.
Interest on late payment of Advance Tax
Interest on late payment of Advance Tax is governed by sections 234A, 234B and 234C.
Interest under section 234A – Default in furnishing the return of Income:
If an assessee has not filed the return of income within the due date, a simple interest @ 1%
for every month or part of a month shall be payable. It is calculated from the due date to date
of furnishing the return.
Example:
A company files its return on 15th December. Due date of filing return of income is 30th
September. Let us assume that the tax payable by the company is Rs.2, 00,000. Interest will
be calculated as follows:
Tax Liability Rs. 2, 00,000/-
Delay = 3 months i.e. October, November and December.
Interest payable = Rs.2, 00,000 X 3%= Rs. 6,000/-
Example: Say, your total tax outstanding for F.Y 2023-24 is Rs 1 lakh (net of advance
tax paid & TDS if any) and you file your return on the 31st December, 2024 instead of 31st
July 2024, the due date to file income tax return for FY 2023-24.
You are now 5 months late in your tax payments. Interest = 100,000 x 1% x 5 = Rs. 5,000
This Rs. 5,000 is over and above the tax amount that you will be paying in any case.
Interest under section 234B- Default in payment of Advance Tax:
If an assessee who is liable to pay advance tax , but not paid the same or if the advance tax
paid by him is less than 90% of the assessed tax, he is liable to pay simple interest at 1%
every month or part of a month.
Interest is calculated from April 1st of the next financial year to the date of determination of
total income under Section 143 (1) or till the date on which the self-assessment tax is paid,
whichever is earlier. But, if regular assessment u/s. 143 (3) is completed, then interest is
charged up to the date of regular assessment.
Interest shall be calculated on the amount equal to the assessed tax in case no advance tax is
paid, or on the amount by which the advance tax paid falls short of the assessed tax.
Example1:
Radhika’s total tax liability is Rs 48,000. Radhika paid this amount on 12th June while filing
her return. No tax was deducted at source in her case. Radhika’s total tax liability is more
than Rs 10,000, and hence she was liable to pay advance tax. As a result, Radhika will be
liable to pay interest under section 234B.
Interestcalculation:
Rs 48,000 x 1% x 3 (April, May, June) = Rs 1,440 Radhika is liable to pay Rs 1,440 interest
as per section 234B.
Example2
Arnav had a total tax payable of Rs 56,000, out of which Rs 48,000 was paid by him on 29th
March as advance tax. The remaining balance of Rs 8,000 was paid by Arnav at the time he
was filing his return on 30th May. Even though Arnav has paid advance tax, we need to
check whether he paid at least 90% of the assessed tax as advance tax or not. Assessed tax is
Rs 56,000. 90% of assessed tax is Rs 50,400. However, Arnav deposited only Rs 48,000,
which is less than 90% of assessed tax. Therefore, Arnav is liable to pay interest under
section234B.
Interestcalculation
56,000(assessed tax) – Rs 48,000 (advance tax) = 8,000. Since 90% of assessed tax is not
paid , Interest u/s 234B will be computed as follows
8,000 x 1% x 2 (April and May) = Rs 160. Rs 160 is the interest payable under section 234B
by Arnav.
Example3:
Assume that the total tax Rohit needs to pay for the financial year is Rs. 1,50,000. A TDS of
Rs 1,35,627 was already deducted from his income. Rohit paid Rs 5,000 on 25th March and
balance of Rs 9,373 he paid at the time of filing his return on 20th July. Let’s check whether
Rohit needs to pay interest under section 234B First let’s calculate assessed tax. Assessed tax
= Rs 1,50,000 (total tax) – Rs 1,35,627 (TDS) = Rs 14,373 Rohit should have paid at least
90% of the assessed tax or 90% of Rs 14,373 which is Rs 12,935 before 31st March.
However, he paid only Rs 5,000. Therefore, Rohit is liable to pay interest under section
234B
Interestcalculation
Rs 14,300(assessed tax, fraction of 100 ignored) – Rs 5000(Advance Tax) = Rs 9300 Rs 9300
x 1% x 4 months (April, May, June, July) = Rs 372 Rs 372 is the interest payable under
section 234B by Rohit.
Interest under section 234C
If the advance tax paid is in under estimated installments or if it is not paid at all, Section
234C gets attracted.
Interest is calculated on the difference between the installment paid and installment
payable. Rate of interest is @ 1% p.m. for a period of 3 months for every deferment. But, for
last installment on 15th March, interest would be 1% for 1 month only.
For First installment – No interest if payment of advance tax is more than 12 %
For Second installment – No interest if payment of advance tax is more than 36 %
(Cumulative)
Example:
Mr. X is an assessee whose income tax computed was Rs 6,00,000
He paid the following advance tax:
1. 10thJune: Rs 30,000
2. 15thSeptember: Rs 50,000
3. 15thDecember: Rs 25,000
4. 15th March : Rs 30,000
Total = Rs 1,35,000
TDS= Rs 1,20,000
Solution
Tax Assessment: Rs 6,00,000- 1,20,000= Rs 4,80,000
Penalty on the Advance Tax is calculated on the basis of difference between actual amount
paid and due.
15% of Rs 4,80,000 = 72,000 differential = 72,000- 30,000 = Rs 42,000
45% of 4,80,000 = 2,16,000 differential = 2,16,000- 80,000 = Rs 1,36,000
75% of 4,80,000=3,60,000 differential =3,60,000-1,05,000= Rs 2,55,000
100% of 4,80,000 = 4,80,000, differential = 4,80,000-1,35,000 = Rs 3,45,000
Interest Charges:
Rs 42,000*1%*3 months = Rs 1,260
1,36,000*1%*3 months = Rs 4,080
2,55,000*1%*3 months = Rs 7,650
3,45,000*1%*1 months = Rs 3,450
Total Interest= Rs 16,440.
Example
If Mr. Kumar has a total tax liability of ₹10,00,000 to be paid in four installments, the
interest calculation for delays is as follows (assuming no TDS):
Advance Advance Penal
Due Date Shortfall Months
Tax Due Tax Paid Interest
₹1,50,000 – ₹1,00,000
₹1,50,000
15th June ₹50,000 ₹50,000 = 3 × 1% × 3 =
(15%)
₹1,00,000 ₹3,000
₹4,50,000 – ₹2,00,000
15th ₹4,50,000
₹2,50,000 ₹2,50,000 = 3 × 1% × 3 =
September (45%)
₹2,00,000 ₹6,000
₹7,50,000 – ₹4,00,000
15th ₹7,50,000
₹3,50,000 ₹3,50,000 = 3 × 1% × 3 =
December (75%)
₹4,00,000 ₹12,000
15th ₹10,00,000 ₹5,00,000 ₹10,00,000 – 1 ₹5,00,000
March (100%) ₹5,00,000 = × 1% × 1 =
₹5,00,000 ₹5,000
Total Interest: ₹3,000 + ₹6,000 + ₹12,000 + ₹5,000 = ₹26,000
234 D – Interest on Income Tax Refund - 0.5% P.M.
234 E – For non- Payment of TDS – 1%
234 F – late fees for filing Income Tax Return
From due date to 31st December 5000 Rs. And From 1st January to 31st March 10000 Rs.
However Fees of Rs. 1000 is applicable if gross taxable income is up to 5,00,000 Rs. And
no late fees if gross taxable income is less than Rs. 2,50,000
