The First Installment Of Advance Tax Is Due On March 15: Here Is What You Need To Know

As March 15 knocks on the door, it is important to find out crucial details on advance tax. The IT Department posted on X, “Paying on time not only upholds your compliance with tax regulations but also strengthens the 'Viksit Bharat Movement', contributing to India’s vision of self-reliance and prosperity.”

The tax laws in India follow a Pay As You Earn (PAYE) methodology for tax payments. Advance tax is a process where the taxpayer would need to assess his annual income and pay the tax in four installments within the specified due dates as follows:

1st installment of advance tax - before 15 June: 15 per cent of total taxes

2nd installment of advance tax - before 15 September: 45 per cent of total taxes

3rd installment of advance tax - before 15 December: 75 per cent of total taxes and

4th installment of advance tax – before 15 March: 100 per cent of the total taxes   

Advance tax is applicable only if the estimated annual tax liability for the taxpayer is Rs 10,000 or more and should be paid net of any tax deducted at source (TDS) that has already been deducted by the payers.

“This means salaried employees do not have to pay advance tax on salary, as total taxes on salary will be deposited by the employer. However, if taxpayers have interest, dividend income, rental receipts, or consulting or business income, then they would need to pay advance tax, which would be net of TDS suffered by them,” says Aarti Raote, Partner, Deloitte India. 

Penalty If Advance Tax Is Not Paid 

Taxpayers failing to pay their advance taxes in due time would be subject to the following interest consequences: 

Interest u/s 234B Of The IT Act

“A taxpayer who is liable to pay advance tax u/s 208 of the IT Act has either failed to pay the advance tax or the advance tax paid by the taxpayer is less than 90 per cent of the assessed tax, would be liable to pay a simple interest at one per cent per month or part of a month for default in payment of advance tax,” says Suresh Surana, a Mumbai-based chartered accountant. 

Such interest would be computed from the first day of the assessment year, i.e., from 1st April till the date of determination of income under section 143(1) or when a regular assessment is made, then till the date of such a regular assessment. It is pertinent to note that any tax paid till 31st March will be treated as advance tax. 

“Further, interest would be calculated on the amount by which the advance tax paid falls short of the assessed tax. However, in case the advance tax is not paid at all, the interest would be computed on the entire assessed tax,” says Surana. 

Interest u/s 234C Of The IT Act

Section 234C of the IT Act provides for a levy of interest for default in payment of installment(s) of advance tax. Such interest would be levied @ one per cent simple interest per month or part of a month for short payment/ non-payment of individual instalment(s) of advance tax.