Advance tax has to be paid by taxpayers who have a total tax liability above Rs 10,000 in a given financial year. However, salaried individuals whose employer deducts the correct amount of TDS from salary don’t need to pay advance tax. The stress is on the word “correct”, because experts say many salaried individuals struggle with huge interest under Section 234C and 234B (in some cases) due to non-payment of advance tax on time, and this may happen despite TDS being deducted by the employer.
Read below to know what salaried individuals should note about advance tax and how to pay it off without attracting Section 234C and 234B interest.
What is the due date to pay advance tax?
The due date to pay the last quarterly installment of advance tax for FY 2024-25 is March 15, 2025.
According to the Income-tax Act 1961, the due date schedule to pay advance tax are as follows:
| Due Date | Advance tax payment percentage |
| On or before June 15 (Q1) | 15% of the net estimated tax liability |
| On or before September 15 (Q2) | 45% of the net estimated tax liability minus advance tax already paid |
| On or before December 15 (Q3) | 75% of the net estimated tax minus advance tax already paid |
| On or before March 15 (Q4) | 100% of net estimated tax minus advance tax already paid |
Deepa Sheth, Associate Partner, Corporate Tax, Tax & Regulatory Services, BDO India explains using some examples.
Example 1: Capital gains income earned in November 2024Where income from capital gains is earned in November 2024, taxpayer shall be required to discharge the whole of the amount of tax payable in the remaining instalments ie. by December 15, 2024 and March 15, 2025 so as to not attract penal interest under section 234C of the Act.Example 2: Capital gains income is earned on March 17, 2025
Where income from capital gains is earned on March 17, 2025 whereby no instalments for advance tax payments are due, in this scenario, the taxpayer shall be required to discharge the whole of the amount of tax payable by March 31, 2025 so as to not attract penal interest under section 234C of the Act.
Why correct amount of TDS must be deducted for advance tax payment by salaried?
Employers ask salaried employees at the beginning of the financial year to declare their investments and expenses which would be eligible for tax deduction or exemption. Based on the declaration given by the employees, the employer deducts an average TDS from salary each month typically until the last quarter of the financial year. So, this entire TDS calculation is dependent upon the estimated net tax liability of the employee. As it is already taken care by the employer hence the salaried employees usually don’t need to pay any advance tax.
The above statement about advance tax for salaried employees holds true only when the estimated tax liability of the employee is equal to the actual tax liability of that employee. If actual income is different and employee has higher tax liability, then it may no longer work.
A safer bet would be to declare additional income to employer so that a higher TDS is deducted, so even if the estimated tax liability is less than the actual tax liability no problem would occur.
Chartered Accountant Ashish Karundia says: “For salaried individuals, it is recommended to also report other estimated incomes at the beginning of the year so that the employer can deduct and deposit the correct TDS. If the actual income differs from the estimate provided to the employer, the employee can claim a refund of the excess tax paid by filing the ITR.”
But problems arise when an employee switches jobs in the middle of the year and they either report a lesser amount or fail to report the old employer’s income. So, the new employer who is totally blind about the situation deducted a lower TDS based on the salary being given now.
Chartered Accountant Prakash Hegde says: Salaried individuals who have switched their jobs mid-year need to note that they should declare the income received from the previous employer to the new employer. This will help the new employer calculate the appropriate amount of TDS to be deducted from salary. If the new employer does not deduct the appropriate amount of TDS from salary, then the tax liability needs to be discharged by the employee through advance tax.
Hegde, however, says interest under section 234C will be applicable even if the employee discharges the additional tax liability through advance tax in the situation stated above. “The only way salaried employees can save 234C interest is to declare the previous employer’s income to the new employer.”
Hegde explains the concept using a example:
For example: Mr. X, a salaried employee, changed his job to a new company in December 2024. In the previous company, he earned Rs 8 lakh from April 2024 to November 30, 2024. He has claimed Section 80C tax deduction of Rs 1.5 lakh. So, his net taxable income is Rs 6.5 lakh from the period April 2024 to November 30, 2024. In the new company he has earned, let’s say Rs 4 lakh from December 1, 2024 to March 2025.
So, unless the new company has information about the Rs 6.5 lakh income Mr. X earned from the old company, they will not deduct TDS. So, Mr. X needs to discharge his tax liability by calculating the total income as Rs 8 lakh+4 lakh-Rs 1.5 lakh= Rs 10.5 lakh and pay it through advance tax. Or Mr. X can declare this income from the old employer to the new employer so that the new employer can deduct the appropriate amount of TDS. Then in this case Mr. X doesn’t need to pay advance tax.
“One way to declare the old income to the new employer is through sharing all the details in Form 12B or by sharing the full and final settlement statement. In my practice, I have usually seen salaried employees being reluctant to share the details of their salary of the previous employer with the new employer and then struggle with huge interest under Section 234C and 234B,” says Hegde
Another problematic situation occurs when the employee receives any income in between the year and fails to declare this to his employer. Without declaring this, the employer won’t know about it and thus will not deduct higher TDS.
Karundia shares a way in which salaried employees can prevent paying Section 234C interest despite not paying advance tax.
“If a salaried employee has failed to disclose other sources of income to the employer, resulting in lower TDS deductions, they can still inform the employer about the additional income and request an increased TDS deduction by March 31, 2025. This will help avoid the imposition of 234C interest. On the other hand, if the employee has made an advance tax payment for the additional income, interest under section 234C could still be applicable if the advance tax paid falls short of the required installments unless such other income is in the nature of capital gains, dividend income, or lottery winnings etc,” says Karundia.
What are the incomes on which advance tax can be paid in the next quarter without penal interest?
The law has given relaxation from payment of advance tax on incomes which can’t be estimated accurately. On these incomes, advance tax can be paid after the income has arisen and not before. Hence Section 234C interest is not payable on such incomes, provided the advance tax is paid in the next quarter when the income arose.
Sheth from BDO India says, since it is difficult to estimate certain incomes before they are earned and hence relaxation is provided under section 234C of the Act to remove unintended hardships caused by charging interest on late payment of advance tax on the following specified income –
- Income from capital gains;
- Income from winnings from lotteries, crossword puzzles, races, games, etc;
- Income earned from any business or profession in the first year;
- Dividend income excluding deemed dividend on account of loan.
“By virtue of this, there is no requirement to pay tax in advance on these specified income, however tax shall be paid once such income is earned i.e. tax needs to be deposited in the remaining advance tax instalments or in case where no instalments are due, by 31 March of the financial year and thereby penal interest under section 234C would not be triggered,” says Sheth.
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