Many people assume that skipping advance tax isn’t a big deal because the penalty is just 1% per month. But this small percentage can add up over time.
If you don’t pay advance tax and wait until the time of filing your ITR, you won’t just be paying your tax liability—you’ll also owe additional interest under sections 234B and 234C of the Income Tax Act.
Let’s understand with an example. Say your advance tax liability is ₹5 lakh. But instead of paying advance tax in installments, you decide to pay the full amount at the time of filing your ITR.
Here’s what happens:
1. Interest u/s 234C: Delay in advance tax instalment
Advance tax isn’t meant to be paid in one go. Instead, it must be paid in four four instalments as per the below schedule:
Since no advance tax was paid, you’ll be charged 1% interest per month on the shortfall amount for each missed instalment.
How is interest calculated?
Section 234C imposes interest from an instalment’s due date until the next instalment, but only up to the end of the financial year (March 31).
- The first three intervals (June 15, September 15, and December 15) span three months each, so the interest charged is 3% (1% × 3 months).
- The last interval (March 15 to March 31) is less than a month, resulting in a 1% interest.
Here’s how the interest is calculated for each shortfall:
Even if you miss an instalment but pay it before the next due date, you will still be charged the full 3% interest penalty for that period. For example, if you miss your June 15 instalment but pay it in August, the interest will still be calculated for the entire three-month period (June 15 to September 15).
2. Interest u/s 234B: Non-payment of advance tax
Now, if you pay the taxes and file your ITR in July, you’ll have to pay interest for the following 4 months as well (Apr - July). This interest will be levied on the entire ₹5 lakh.
Adding up the interest under both these sections, you’ll end up paying ₹45,250 over and above your tax liability which is 9.05% more than what you owed.
Hence, it becomes important to pay your advance tax. You can avoid unnecessary penalties and even manage your finances better.
Here’s a detailed thread on how to calculate your advance tax.