The Income Tax Act requires that your tax liability be paid through the year — not in a lump sum at filing time. This is the advance tax system: four instalments across the financial year, each representing a cumulative percentage of your estimated annual liability. Miss an instalment, or pay less than required, and you owe interest under Section 234C. Miss the year-end balance entirely and Section 234B applies. Together, these two provisions cost taxpayers thousands of crores every year in avoidable interest — almost all of which flows from either not knowing the rules or underestimating income mid-year.
Who needs to pay advance tax?
Advance tax applies to any taxpayer whose estimated tax liability for the year exceeds ₹10,000, after accounting for TDS. Salaried employees whose employer deducts the full TDS liability generally have no advance tax obligation. But professionals with freelance income, business owners, investors with significant capital gains, and NRIs with Indian-sourced income typically do. The threshold catches more people each year as income and investments grow.
The instalment schedule
Four due dates, four cumulative percentages of your total advance tax liability:
- 15 June — 15% of annual estimated tax due.
- 15 September — 45% cumulative (pay 30% this instalment).
- 15 December — 75% cumulative (pay 30% this instalment).
- 15 March — 100% cumulative (pay final 25%).
Taxpayers opting for the presumptive taxation scheme under Sections 44AD or 44ADA have a single consolidated advance tax deadline: 15 March, for 100% of the liability. This simplification is one of the underappreciated benefits of the presumptive scheme for small businesses and professionals.
The cost of getting this wrong: Section 234C interest is 1% per month (simple interest) on the shortfall at each instalment date, for a period of 3 months (except for the March instalment where it applies for 1 month). Section 234B interest is also 1% per month on the assessed tax less TDS, from 1 April to the date of payment or assessment. A ₹5 lakh liability paid entirely at filing time carries roughly ₹60,000 in avoidable interest.
Section 234B: the year-end catch
234B applies when you have paid less than 90% of your assessed tax by 31 March. If your actual tax liability as per your return is ₹10 lakh and TDS covers ₹3 lakh, you should have paid at least ₹6.3 lakh in advance tax. If you paid nothing, 234B interest runs from 1 April to the date you actually pay — at 1% per month. For a business that files its return late in September, that's six months of interest on the full shortfall.
How to estimate correctly
The most common cause of underpayment is underestimating income mid-year. June's instalment is based on April–May actuals; by September, you have six months of data and can refine the estimate significantly. Best practice: schedule a tax estimate review with your CA at each advance tax due date — not just at year-end. Catching an underestimate in June costs you one month of 234C interest. Catching it only at filing costs you the full 234B and 234C interest on the gap, often plus late filing penalties.
If you want a projection of your advance tax obligations for the current financial year, our direct tax team can prepare this as a standalone engagement — typically a two-hour exercise that saves multiples of its cost in interest avoided.
