The December 15 deadline for payment of the third instalment of advance tax has passed, and taxpayers who missed it may now have to bear an interest burden under the Income Tax Act. Advance tax is payable in instalments during the financial year by individuals and entities whose total tax liability exceeds the prescribed threshold.
Under income tax provisions, advance tax is required to be paid in four instalments. By June 15, taxpayers must pay at least 15 percent of their total tax liability. This rises to 45 percent by September 15, 75 percent by December 15 and 100 percent by March 15. Missing any of these deadlines can result in interest being levied for the shortfall.
For taxpayers who did not pay at least 75 percent of their total tax liability by December 15, interest is charged under Section 234C of the Income Tax Act. The interest rate is one percent per month for a period of three months on the amount of shortfall. This applies regardless of whether the delay was intentional or due to miscalculation.
In addition, if the total advance tax paid during the financial year falls short of 90 percent of the assessed tax, interest under Section 234B may also apply. Under this section, interest is charged at one percent per month from April 1 of the assessment year until the date of payment.
Tax experts explain that interest under these sections is mandatory and automatic, leaving little scope for waiver except in specific circumstances notified by the tax authorities. Therefore, it is advisable for taxpayers to regularly review their income and tax liability during the year to avoid surprises.
Individuals with multiple income sources, such as salary, business income, capital gains and interest income, are particularly vulnerable to advance tax shortfalls. Sudden capital gains or higher than expected income during the year can lead to underpayment if not adjusted in subsequent instalments.
Tax professionals recommend paying the pending advance tax as soon as possible, even if the deadline has passed. While the interest for the December instalment is fixed for three months, delaying payment further could increase liability under other provisions.
With digital payment options available through the Income Tax Department portal, settling dues has become relatively straightforward. Taxpayers are encouraged to keep proper records of payments and verify challan details to avoid discrepancies.
As the financial year draws to a close, experts advise taxpayers to reassess their income projections and ensure that the final instalment due by March 15 is paid correctly. Proactive tax planning and timely payments can help avoid unnecessary interest and ensure compliance with tax laws.
