As the third installment of advance tax is due on December 15, taxpayers are reminded of the importance of adhering to this deadline to stay compliant and avoid penalties. Advance tax, often referred to as the “pay-as-you-earn” tax, is a requirement for individuals and businesses whose tax liability for the financial year exceeds ₹10,000.
Who Needs to Pay Advance Tax?
Contrary to popular belief, advance tax is not just for businesspersons or corporates. Salaried individuals are also required to pay advance tax if their estimated liability after accounting for TDS (Tax Deducted at Source) exceeds ₹10,000 in a financial year. However, resident senior citizens with no income from business or profession are exempt.
The advance tax mechanism is designed to ensure that taxpayers contribute to their liabilities as income is earned during the financial year. For the financial year 2024-25, the deadline for the third instalment of advance tax is December 15, which this year coincides with a Sunday. While payments can technically be made on Monday, timely adherence is advisable.
Quarterly Payment Schedule
Advance tax payments are split into four instalments to ease the burden on taxpayers. The schedule is as follows:
June 15: 15% of the total tax liability
September 15: 45% of the total liability (cumulative)
December 15: 75% of the total liability (cumulative)
March 15: 100% of the total liability
For salaried individuals, while employers deduct taxes at source, they might not account for additional income streams such as interest from fixed deposits or capital gains. Taxpayers must factor in these incomes when calculating their advance tax liability.
Self-employed individuals or businesses opting for the presumptive taxation scheme, however, have a different structure, allowing them to pay the entire liability in one go by March 15.
How to Pay Advance Tax
Advance tax can be paid through the official Income Tax Department portal: www.incometax.gov.in. Taxpayers need to log in with their PAN, select “e-pay tax,” and choose the correct assessment year (2025-26 for FY 2024-25). Ensure that “Advance Tax (100)” is selected as the type of payment.
Consequences of Missing Deadlines
Failure to pay advance tax by the stipulated deadlines can lead to penalties under the Income Tax Act. Interest at 1% per month is levied on any shortfall or non-payment, calculated until the amount is cleared.
For instance, if 75% of the tax liability is not paid by December 15, penal interest under Section 234C will apply. Similarly, failure to pay 100% of the liability by March 15 incurs further penalties. If the tax remains unpaid and is cleared only while filing income tax returns, an additional 4% interest under Section 234B is charged for the delay.
Advance tax ensures that the government receives revenue consistently and avoids a year-end burden on taxpayers. Meeting the deadlines also helps individuals avoid hefty penalties and stay compliant with tax regulations.