Advance tax deadline 15 December: Everything you need to know

Advance tax ensures the government receives tax dues in time, and individuals avoid a large payout or interest penalties. An individual whose total tax liability from non-salary income exceeds ₹10,000 after accounting for TDS and TCS must pay it in four instalments. Here’s how it works and what to keep in mind before the upcoming deadline.

Income sources

If you have income sources such as capital gains, interest, dividends, or income from a business or profession, you are required to pay advance tax on these.

If the total tax liability from income streams is more than ₹10,000 (after adjusting for tax deducted and credited at source–TDS and TCS), instead of paying the total tax due when filing your income tax return (ITR), you have to pay it in four instalments over the course of the year.

However, the way the advance tax liability will be calculated will depend on the income source.

For example, if you have business or professional income, you are required to estimate how much taxable income you’d be paying at the beginning of the financial year and accordingly pay advance tax if the tax liability exceeds ₹10,000.

There are different deadlines for the advance tax payments. The first deadline is 15 June, by which you need to pay 15% of your estimated tax liability. The second deadline is 15 September, by which you need to pay 45% of the estimated tax liability. The third deadline is by 15 December, by which time you need to pay 75% of the estimated tax liability, and the final deadline is 15 March, by which time you need to pay 100% of your tax liability.

“As far as capital gains and dividend income are concerned, you are not required to pay advance tax till these incomes are realised. The advance tax becomes payable in the quarter in which these income streams are earned, as it is not possible to estimate these income streams," said Prakash Hegde, a Bengaluru-based chartered accountant.

Senior citizens, who are more than 60 years old, are not required to pay advance tax. However, if the senior citizen has income from a business or profession, advance tax requirements are applicable.

What is the penalty

If the advance tax payment is missed, the individual is required to pay 3% of the missed instalment. Now, suppose on a total advance-tax liability of ₹1 lakh, you are required to deposit ₹15,000 by 15 June (i.e. first instalment). The tax department charges 1% per month for three months on the unpaid portion, which works out to 3% of the shortfall.

In this case, you would pay ₹450 as interest on the ₹15,000 you failed to pay on time. Even if you make up the difference later, the three-month interest for that missed instalment still applies.

“Taxpayers often fail to realize that delaying advance tax is financially irrational, as the penal interest under Sections 234B and 234C is expensive," Hegde said. Paying well in time is not just a statutory duty but a smart financial management strategy to stop the erosion of your hard-earned wealth.