Advance Tax Due Date On December 15: 9 Advance Tax Mistakes Even CAs Don’t Warn You About

The third installment of advance tax for FY 2025-26 becomes due on 15 December 2025. Advance tax is applicable where the total estimated tax liability for the year exceeds Rs. 10,000, as per Section 208. Timely evaluation and payment also help avoid interest under Sections 234B and 234C.

As per CA (Dr.) Suresh Surana, some of the key considerations while making advance tax payments are as follows:

1. Interest and Dividend Income Recognition

Interest income from fixed deposits, recurring deposits, bonds, listed/unlisted debt instruments, and other securities, along with dividend income, should be considered on an accrual basis, unless specifically exempt.

Taxpayers may often fail to account for accrued interest or dividend income that has not yet been credited but is still taxable during the relevant period in their advance tax payments.

2. Liability to Pay Advance Tax:

Taxpayers are often not aware of their advance tax liability. In accordance with section 208 of the Income Tax Act, 1961 (hereinafter referred to as 'the IT Act'), every person whose estimated tax liability for the year is Rs. 10,000 or more shall be liable to pay advance tax.

However, resident senior citizens aged 60 years or more during the relevant financial year and not having any income from business or profession would be exempt from payment of advance tax.

3. Application of Special Tax Regimes on Specific Income Streams

Taxpayers should not apply the slab rates uniformly to all income streams, as certain categories such as capital gains or lottery income are taxed at special rates rather than applicable slab rates. Income taxable at concessional or differential tax rates such as:

• Short-term equity gains are taxable at 20% under Section 111A,
• Long-term equity gains taxable under 112 or 112A,
• Casual income at 30% under Section 115BB,
• Virtual Digital Asset gains at 30% under Section 115BBH should be computed using corresponding rates and not general slab rates. This ensures accurate computation of tax for the relevant financial year.

4. Not Factoring TDS/TCS Credits

Tax deducted at source (TDS) or collected at source (TCS) should be adjusted before calculating the advance tax liability. Overlooking this often leads to duplication of payment. Thus, advance tax computation should be adjusted for tax already deducted or collected at source, to the extent actually credited or expected to be credited based on income already earned.

5. Determination of Tax Regime

Taxpayers eligible to opt between the normal tax regime and the concessional regime under Section 115BAC should ensure that the tax determination aligns with the choice of tax regime. The treatment of deductions and exemptions (Chapter VI-A), allowances, etc may impact the advance tax liability.

Also, other factors such as surcharge applicability, marginal relief, etc. may also materially impact advance tax liability and should be taken into consideration. Eligible taxpayers frequently forget to apply the rebate under Section 87A, or to adjust for relief available under Double Taxation Avoidance Agreements, leading to overpayment.

6. Failure to Revise Estimates Mid-Year:

Advance tax liability must be re-estimated each quarter based on actual income trends. Continuing with initial projections, despite significant changes in income, may lead to a shortfall or excess payment.

Adjustments such as revised salary packages, bonuses, increased business turnover, additional rent, investment transactions, cessation of income sources, or other financial events during the year may alter tax projections. Periodic reconciliation ensures that tax payments align with real-time income estimates and statutory requirements for quarterly installments.

7. Overlooking Interest Implications:

Ignoring the impact of Sections 234B and 234C leads to unnecessary penalties. Taxpayers failing to pay their advance taxes in due time would be subject to the following interest consequences: -

· Interest u/s 234B of the IT Act

A taxpayer who is liable to pay advance tax u/s 208 of the IT Act and has either failed to pay the advance tax or the advance tax paid by the taxpayer is less than 90% of the assessed tax, would be liable to pay a simple interest at 1% per month or part of a month for default in payment of advance tax.

Such interest would be computed from the first day of the assessment year, i.e., from 1st April till the date of determination of income under section 143(1) or when a regular assessment is made, then till the date of such a regular assessment. It is pertinent to note that any tax paid till 31st March will be treated as advance tax.

Further, interest would be calculated on the amount by which the advance tax paid falls short of the assessed tax. However, in case the advance tax is not paid at all, the interest would be computed on the entire assessed tax.

Interest u/s 234C of the IT Act: Section 234C of the IT Act provides for the levy of interest for default in payment of installment(s) of advance tax. Such interest would be levied @ 1% simple interest per month or part of a month for short payment/ non-payment of individual instalment(s) of advance tax. Interest u/s 234C in case of deferment of different instalments of advance tax would be levied as follows:

In the case of taxpayers opting for the presumptive taxation scheme u/s 44AD or 44ADA of the IT Act, Section 234C interest shall be levied if the advance tax paid on or before 15th March is less than 100% of the advance tax payable.

8. Factoring Capital Gains and Windfall Income

Short-term capital gains, sale of property, dividends, and other windfall gains are often overlooked while projecting income. These items must be factored in when computing advance tax liability.

However, relaxation has been provided where the shortfall arises on account of unforeseeable incomes such as capital gains, dividend income, winnings from lotteries etc. In such cases, no interest under Section 234C will be charged if the taxpayer pays the entire tax liability on such income as a part of the immediate following installments of advance tax (or by 31st March of the financial year, where no instalment is due).

9. Incorrect Use of Challan ITNS 280

Errors such as selecting the wrong assessment year, using the wrong minor head code (self-assessment tax instead of advance tax), or wrong PAN details result in a mismatch and denial of credit. The correct minor codes to be selected are minor code 0020 - Income-Tax On Companies (Corporation Tax) and minor code 0021 - Income Tax (Other Than Companies).

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