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Direct Tax Laws & International Taxation · Deduction, Collection and Recovery of Tax

Advance Payment of Tax: Liability, Due Dates and Interest (CA Final)

Updated 5 October 2026 · Fact-checked

Advance tax is tax you pay during the tax year itself, in instalments, on your estimated income. It applies if your estimated tax payable after TDS and TCS is ₹10,000 or more. To solve questions, find net liability, check exemptions, apply the 15%, 45%, 75% and 100% schedule, then compute interest for shortfall and deferment at 1% per month.

Understand Advance Payment of Tax

Tax is meant to be paid as income is earned, not in one lump after the year ends. TDS and TCS do this for some receipts. Advance tax covers the rest. You estimate your income for the tax year, work out the tax, deduct TDS and TCS, and pay what remains in instalments before the year closes.

The duty arises only if the tax payable after reducing TDS and TCS is ₹10,000 or more. Below that, you simply pay at the time of filing as self-assessment tax. The duty covers all assessee types: individuals, firms, companies and others.

Two groups get relief. A resident senior citizen (aged 60 or more at any time in the tax year) with no income from business or profession need not pay advance tax. An assessee who opts for presumptive taxation pays the whole advance tax in a single instalment, due by 15 March, instead of four. This single-instalment rule is for an eligible business under section 44AD and an eligible profession under section 44ADA.

The law enforces the duty through interest, not penalty. There are two charges. Interest for default in payment applies when you pay less than 90% of the assessed tax in advance. Interest for deferment applies when an individual instalment falls short of the required percentage on its due date. Both are simple interest at 1% per month. Most exam marks come from knowing which one applies and what base to use.

Key rules to remember

Liability threshold
Advance tax payable if (tax on estimated total income − TDS − TCS) ≥ ₹10,000
Use tax including surcharge and cess. Reliefs and credits that the law allows are also reduced.
Instalments (non-presumptive assessees)
By 15 June: 15% | By 15 September: 45% | By 15 December: 75% | By 15 March: 100% (all cumulative)
Percentages are of the net advance tax liability and are cumulative, not separate slabs.
Presumptive taxation
100% of advance tax in one instalment on or before 15 March
Applies to eligible business under section 44AD and eligible professions under section 44ADA. Amounts paid up to 31 March are still treated as advance tax for the year.
Exempt class
Resident individual aged 60 or more, with no business or profession income: no advance tax
Non-resident senior citizens do not get this relief. Business income from any source takes it away.
Interest for deferment of instalments
1% per month × 3 months on shortfall for the June, September and December instalments; 1% × 1 month on shortfall for the March instalment
Base is tax on returned income less TDS and TCS. Measure the shortfall against the required cumulative amount.
Relief on first two instalments
No interest if cumulative payment by 15 June ≥ 12% and by 15 September ≥ 36%
This applies only to the June and September instalments. The December and March targets stay at 75% and 100%.
Interest for default in payment of advance tax
1% per month or part of a month × (assessed tax, as reduced by TDS, TCS and relief − advance tax paid), if advance tax paid < 90% of assessed tax
Applies when advance tax paid is below 90% of assessed tax. It runs from 1 April of the tax year to the date of determination of income. The assessed tax is first reduced by TDS, TCS and relief, and the advance tax paid is then deducted.
Unforeseen income
No deferment interest on shortfall caused by capital gains, casual income or similar uncertain receipts if tax is paid in the remaining instalments of the same tax year
If the income arises after the last instalment, pay the full tax by 31 March.

How to solve Advance Payment of Tax questions

Follow this order for any advance tax question. It keeps the liability, the instalment test and the interest base from getting mixed.

  1. 1Check whether the assessee is liable. Compute estimated tax, reduce TDS and TCS, and test against ₹10,000.
  2. 2Check exemptions and special cases. Look for a resident senior citizen without business income, or a presumptive taxpayer under section 44AD or 44ADA.
  3. 3Compute the net advance tax liability. Use tax on estimated or returned income including surcharge and cess, less TDS, TCS and eligible credits.
  4. 4Lay out the schedule. Required cumulative amount is 15%, 45%, 75% and 100% of net liability, or 100% by 15 March for presumptive taxpayers.
  5. 5Tabulate payments by due date. Only payments made on or before each due date count for that instalment.
  6. 6Compute interest for deferment instalment by instalment. Apply the 12% and 36% relief tests first, then 1% per month on the shortfall.
  7. 7Test interest for default. If advance tax paid is 90% or more of assessed tax, there is none. Otherwise charge 1% per month or part from 1 April on the assessed tax (after TDS, TCS and relief) less advance tax paid.
  8. 8State the answer in provision-facts-conclusion form, with the amount of interest and the reason for each instalment.

Quickest way: Four-line instalment table

When to use it: Use it in written answers and case MCQs where payments and due dates are given and you must find interest quickly.

  1. Compute net liability once. Write the four required cumulative amounts in a row: 15%, 45%, 75%, 100%.
  2. Write cumulative payments made by each date directly below.
  3. For June and September, first test against 12% and 36%. If met, interest is nil. If not, shortfall against 15% and 45% carries 3 months' interest.
  4. For December, shortfall against 75% carries 3 months. For March, shortfall against 100% carries 1 month.
  5. Add the four interest figures. Then run the 90% test separately for default interest.

Common mistakes in Advance Payment of Tax

  • Treating the 15%, 45%, 75% figures as separate instalments of that size

    The words 'instalment' and 'percentage' suggest each date has its own slab.

    Fix: Always treat the percentages as cumulative. The actual payment due in September is 30% of liability, which takes the total to 45%.

  • Charging interest on the 15% and 45% shortfall even when 12% and 36% have been paid

    Students forget the relief threshold that applies only to the first two instalments.

    Fix: Test 12% and 36% first. If met, nil interest for that instalment. If not, charge on the full shortfall against 15% or 45%.

  • Ignoring TDS and TCS in the base

    Students compute interest on gross tax payable.

    Fix: Reduce TDS and TCS from the tax on returned income before applying the percentages. Advance tax is only the balance.

  • Giving a senior citizen relief to anyone aged 60 or above

    The age rule is remembered but not the conditions.

    Fix: Check three things: resident, aged 60 or more at any time in the tax year, and no income from business or profession.

  • Applying four instalments to a presumptive taxpayer

    Students apply the general schedule by habit.

    Fix: An eligible taxpayer under section 44AD or 44ADA pays 100% by 15 March. Interest for deferment is only 1% for one month on the shortfall at that date.

  • Confusing the two interest charges

    Both are 1% per month, so they look alike.

    Fix: Deferment interest is tested instalment by instalment on returned income. Default interest is tested once, on assessed tax (after TDS, TCS and relief) less advance tax paid, with the 90% rule, and counted from 1 April.

Worked examples

Example 1

A resident company has tax on returned income (including surcharge and cess) of ₹10,00,000, and TDS of ₹1,00,000 was deducted during the year. It pays advance tax of ₹1,00,000 on 14 June, ₹2,00,000 on 14 September, ₹3,75,000 on 14 December and ₹2,25,000 on 14 March. Compute interest for deferment of instalments.

Show the solution
  1. Net liability = ₹10,00,000 − ₹1,00,000 = ₹9,00,000.
  2. Required cumulative amounts: 15% = ₹1,35,000; 45% = ₹4,05,000; 75% = ₹6,75,000; 100% = ₹9,00,000.
  3. Cumulative payments: June ₹1,00,000; September ₹3,00,000; December ₹6,75,000; March ₹9,00,000.
  4. June: the 12% test is ₹1,08,000. Paid ₹1,00,000 is less, so relief fails. Shortfall = ₹1,35,000 − ₹1,00,000 = ₹35,000. Interest = ₹35,000 × 1% × 3 = ₹1,050.
  5. September: the 36% test is ₹3,24,000. Paid ₹3,00,000 is less. Shortfall = ₹4,05,000 − ₹3,00,000 = ₹1,05,000. Interest = ₹1,05,000 × 1% × 3 = ₹3,150.
  6. December: ₹6,75,000 paid equals the 75% requirement. Interest is nil.
  7. March: ₹9,00,000 paid equals 100%. Interest is nil.
  8. Total = ₹1,050 + ₹3,150 = ₹4,200.

Answer: Interest for deferment of advance tax instalments is ₹4,200, being ₹1,050 for the June instalment and ₹3,150 for the September instalment. There is no interest for December or March.

Example 2

Ravi, a resident individual aged 42, runs a small business and has opted for presumptive taxation under section 44AD. His net tax liability for the tax year after TDS is ₹60,000. He pays ₹40,000 on 10 March and the balance of ₹20,000 on 28 March. Compute interest for deferment and for default in payment of advance tax, ignoring any later assessment difference.

Show the solution
  1. A presumptive taxpayer under section 44AD must pay 100% of advance tax on or before 15 March. Required amount = ₹60,000.
  2. Paid by 15 March = ₹40,000. Shortfall = ₹60,000 − ₹40,000 = ₹20,000.
  3. Deferment interest = ₹20,000 × 1% × 1 month = ₹200.
  4. Payment of ₹20,000 on 28 March is within 31 March, so it counts as advance tax for the year.
  5. Total advance tax paid by 31 March = ₹60,000, which is 100% of the tax. This is above the 90% test, so no default interest arises.

Answer: Interest for deferment is ₹200. There is no interest for default in payment, because advance tax paid by 31 March is at least 90% of the tax.

Exam tips

  • Case MCQs usually hide the liability test or exemption in a fact. Check age, residence and nature of income before you compute anything.
  • Always show the net liability line after TDS and TCS. Examiners give marks for the right base even when the arithmetic slips.
  • Set out the interest working in a four-row table. Marks are given for each instalment's shortfall and months.
  • In theory questions, state the rule, the instalment dates and the interest consequence together, in provision-facts-conclusion form.
  • Mention that capital gains and casual income relief applies only if the tax is paid in the remaining instalments of the same tax year.

Practice questions from Deduction, Collection and Recovery of Tax

Advance Payment of Tax in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Advance Payment of Tax: frequently asked questions

Who is liable to pay advance tax?

Any assessee whose tax payable for the year, after reducing TDS and TCS, is ₹10,000 or more. This covers individuals, firms, companies and other persons. Resident senior citizens without business or profession income are exempt.

Does a senior citizen with presumptive business income pay advance tax?

Yes. The exemption applies only to resident senior citizens who have no business or profession income. Presumptive business income counts as business income, so the senior citizen must pay advance tax. For an eligible business under section 44AD or profession under section 44ADA, payment is made in a single instalment by 15 March.

What are the advance tax due dates?

The four dates are 15 June (15%), 15 September (45%), 15 December (75%) and 15 March (100%), all cumulative. An eligible presumptive taxpayer under section 44AD or 44ADA pays the whole amount by 15 March. Tax paid up to 31 March is still treated as advance tax.

How is interest for shortfall in advance tax calculated?

For each of the first three instalments, interest is 1% per month for 3 months on the shortfall. For the March instalment it is 1% for 1 month. Nil interest applies for June and September if you have paid 12% and 36% respectively. Separately, if advance tax paid is under 90% of assessed tax, default interest at 1% per month or part is charged from 1 April to the date of determination of income, on the assessed tax (after TDS, TCS and relief) less advance tax paid.