Who Is Liable To Pay Advance Tax And When It Is To Be Paid?

Tax shall be payable in advance during any financial year, in accordance with the provisions of sections 208 to 219 of the Income Tax Act, 1961, in respect of the total income of the assesse which would be chargeable to tax for the assessment year immediately following that financial year, such income being the current income for that year. [Section 207(1)]

The above provisions shall not apply to an individual resident in India, who does not have any income chargeable under the head “ Profits and gains of business or profession” ; and is of the age of sixty years or more at any time during the previous year.

Advance tax shall be payable during a financial year in every case where the amount of such tax payable by the assesse during that year, as computed in accordance with the provisions of Section 208 is Rs. 10,000 or more. That means any person, whose tax payable during that financial year is less than Rs. 10,000 is not required to pay advance tax.

Under Income Tax Bill 2025, clause 403 of the bill provides the same condition as above.

Calculation of Advance Tax under section 209 of Income Tax Act

Advance tax as calculated on the current income shall be payable in four installments during each financial year.  The due date of payment of advance tax and the amount payable in each instalment during financial year is indicated in following schedule.

Please remember that in the case of an assesse who declares profits and gains in accordance with the provisions of Section 44AD (1) or Section 44DA (1) as the case may be is required to pay100% of the advance tax on or before 15^th March.

Where the current income includes;

• Capital Gains; or
• Income of the nature referred to in section 2(24)(ix) i.e. winning from lotteries, cross word puzzles, races including horse races, card games, other games, gambling or betting; or
• Income under the head “ Profits and gains of business or professions in cases where the income accrues or arises under the same head for the first time; or
• Income in the nature referred to in section 115BBDA(1), the assesse should pay the whole amount of tax, no instalment will available.

In a case such income arises after 15^th March, the whole amount of the advance tax payable thereon should be paid on or before 31^st March.

There is no change in date of instalment or percentage of instalment under the Income Tax Bill – 2025 (Clauses 403 to 410)

Consequences for non-payment of Advance Tax: Section 218

If an assesse do not pay or forget to pay instalment of Advance Tax before specified date as required to pay, he shall be deemed to in default, penalty u/s 221 is leviable for the unpaid instilment or instalments. For other defaults in payment of advance tax, penal interest u/s 234B and/or 234C is leviable. No penalty is leviable for such default u/s 273.

• Section 234B: Interest for default in payment of advance tax. If an assessee fails to pay advance tax, or if the aggregate advance tax paid is less than 90% of the “assessed tax” (total tax liability determined after assessment, less TDS/TCS, relief, etc.), interest under Section 234B is levied. This interest is calculated at 1% per month or part of a month on the amount of shortfall (Assessed Tax minus Advance Tax paid). The interest is levied from the 1st of April of the relevant assessment year until the date of determination of total income under regular assessment or, if self-assessment tax is paid before such assessment, up to the date of payment of such tax.

• Section 234C: Interest for deferment of advance tax. This section deals with the delay or shortfall in the payment of individual installments of advance tax by their respective due dates. Interest under Section 234C is also charged at 1% per month on the amount of shortfall in paying each installment.

  • For the first three installments (due on June 15th, September 15th, and December 15th), if the tax paid by the due date is less than the prescribed percentage of the total advance tax payable (15%, 45%, and 75% respectively), interest is levied for a period of three months on the shortfall amount for each such default.
  • For the last installment (due on March 15th), if the advance tax paid up to March 15th is less than 100% of the advance tax payable, interest is levied at 1% for one month on the unpaid amount.

  It is important to note that certain relaxations are provided under Section 234C. For instance, no interest is levied if the shortfall in the first or second installment is due to an underestimation or failure to estimate the amount of capital gains or income from lotteries, crossword puzzles, etc., provided the assessee pays such tax as part of the subsequent advance tax installments or by March 31st of the financial year.

• Penalty for Unpaid Installments: Section 221: Once an assessee is deemed to be in default for non-payment of advance tax installments, a penalty under Section 221 of the Income Tax Act can be levied. This section empowers the Assessing Officer to impose a penalty, the amount of which can be up to the sum of the tax in arrears. However, the imposition of this penalty is not automatic. The assessee is provided with an opportunity to be heard and present their case. If the assessee can prove to the satisfaction of the Assessing Officer that the default was due to “good and sufficient reasons,” the penalty under Section 221 may not be levied. It’s important to note that paying the tax arrears before the penalty is levied does not absolve the assessee from potential penalty proceedings.

• Non-Applicability of Penalty under Section 273: The provided statement correctly indicates that no penalty is leviable under Section 273 of the Income Tax Act for the simple default in payment of advance tax installments. Historically, Section 273 dealt with penalties related to furnishing untrue estimates of advance tax or failing to furnish an estimate of advance tax. However, with amendments to the Income Tax Act, particularly the omission of sections like 209A (which dealt with furnishing statements of advance tax by the assessee), the direct applicability of Section 273 for mere non-payment of advance tax installments (where the assessee is deemed in default under Section 218 and faces consequences under Sections 221, 234B, and 234C) is no longer the primary provision for penalizing such defaults. The focus for non-payment or short payment defaults now rests on the interest provisions of Sections 234B and 234C, and the penalty provision of Section 221.