With the Income-tax Act, 2025 becoming applicable from 1 April 2026, the section numbers governing advance tax and related interest provisions have changed.
For readers familiar with the Income-tax Act, 1961, the following comparison provides a quick reference:
| Income-tax Act, 2025 | Subject | Corresponding Section – Income-tax Act, 1961 |
| Section 403 | Liability for payment of advance tax | 207 |
| Section 404 | Conditions of liability to pay advance tax | 208 |
| Section 405 | Computation of advance tax | 209 |
| Sections 406 & 407 | Payment of advance tax on own accord / pursuant to AO order | 210 |
| Section 408 | Instalments of advance tax and due dates | 211 |
| Section 409 | Assessee deemed to be in default | 218 |
| Section 410 | Credit for advance tax | 219 |
| Section 411 | Tax payable and assessee deemed to be in default | 220 |
| Section 423 | Interest for default in furnishing return of income | 234A |
| Section 424 | Interest for defaults in payment of advance tax | 234B |
| Section 425 | Interest for deferment of advance tax | 234C |
For simplicity, this guide primarily refers to the Income-tax Act, 2025 section numbers, while mentioning the corresponding provisions of the Income-tax Act, 1961 wherever useful.
Three Different Types of Interest Taxpayers Should Understand
Advance-tax compliance is closely connected with three separate interest provisions. Although they are related, they apply to different types of defaults.
Section 423 – Interest for Delay in Filing the Return
Corresponding provision: Section 234A of the Income-tax Act, 1961
Section 423 deals primarily with delay in furnishing the Income Tax Return where the prescribed conditions for charging interest are satisfied.
The interest is generally calculated at 1% for every month or part of a month for the relevant period prescribed under the law.
This provision should not be confused with advance-tax default itself. Sections 424 and 425 deal more directly with failures relating to advance tax.
Section 424 – Interest for Default in Payment of Advance Tax
Corresponding provision: Section 234B of the Income-tax Act, 1961
Section 424 becomes relevant where a taxpayer who was liable to pay advance tax:
- failed to pay advance tax; or
- paid advance tax that was less than 90% of the assessed tax, subject to the conditions prescribed under the provision.
Interest is generally charged at 1% for every month or part of a month on the amount determined in accordance with Section 424.
Therefore, the 90% test relates principally to Section 424 (old Section 234B). It should not be confused with the percentage requirements for individual advance-tax instalments.
Section 425 – Interest for Deferment of Advance Tax Instalments
Corresponding provision: Section 234C of the Income-tax Act, 1961
Section 425 deals with a different situation.
Even where a taxpayer ultimately pays the entire tax liability, interest may arise if the required proportion of advance tax was not paid by the prescribed instalment dates.
For taxpayers following the normal instalment schedule, the relevant cumulative benchmarks are:
| Due Date | Required Cumulative Advance Tax |
| 15 June | At least 15% |
| 15 September | At least 45% |
| 15 December | At least 75% |
| 15 March | 100% |
The law also contains specified tolerance provisions for the first two instalments while determining interest liability.
Accordingly, Section 425 should be examined separately for each applicable instalment rather than merely checking whether the entire tax was eventually paid before filing the return.
Section 424 vs Section 425 – Simple Difference
The distinction can be understood as follows:
| Particular | Section 424 (Old 234B) | Section 425 (Old 234C) |
| Main issue | Overall shortfall/default in advance tax | Deferment of individual instalments |
| Important benchmark | 90% of assessed tax | Prescribed instalment percentages |
| Nature of interest | Generally 1% per month or part thereof for the prescribed period | Generally 1% on the relevant instalment shortfall for the prescribed period |
| Can it apply even if some advance tax was paid? | Yes | Yes |
| Main objective | Discourage inadequate overall advance-tax payment | Encourage timely payment of each instalment |
A taxpayer may therefore face interest under both provisions, depending upon the facts of the case.
Important: Interest Is Compensatory, Not a Penalty
Interest for default or deferment of advance tax should ordinarily be described as interest liability, rather than as a penalty.
This distinction is important because the Income-tax Act separately provides for penalties in specified circumstances.
Therefore, throughout this guide, delayed or insufficient advance-tax payment is described as potentially attracting interest under Sections 424 and 425, rather than automatically being described as an advance-tax “penalty.”
Practical Example: How Interest on Advance Tax Is Calculated
Let us understand the working of advance-tax interest through a simple illustration.
Assume that a taxpayer’s advance-tax liability after considering eligible TDS/TCS and other applicable credits is ₹1,26,200.
The taxpayer makes the following advance-tax payments:
| Date of Payment | Amount Paid |
| 20 June | ₹20,000 |
| 10 September | ₹10,000 |
| 30 December | ₹30,000 |
| 15 March | ₹15,000 |
| Total Advance Tax Paid | ₹75,000 |
The important point is that an advance-tax payment is considered for an instalment only if it has been paid on or before the relevant due date.
Accordingly:
- The ₹20,000 paid on 20 June was after the 15 June due date and therefore does not count towards the 15 June instalment.
- By 15 September, cumulative advance tax paid was ₹30,000.
- The ₹30,000 paid on 30 December was after the 15 December due date and therefore does not count towards that instalment.
- By 15 March, total advance tax paid was ₹75,000.
Interest for Deferment of Advance Tax – Section 425
Corresponding provision: Section 234C of the Income-tax Act, 1961
The instalment-wise calculation is illustrated below:
| Due Date | Required Cumulative Amount | Amount Paid by Due Date | Shortfall Relevant for Interest | Period | Approx. Interest |
| 15 June | 15% of ₹1,26,200 = ₹18,930 | Nil | ₹18,930 | 3 months | ₹567 |
| 15 September | 45% = ₹56,790 | ₹30,000 | ₹26,790 | 3 months | ₹804* |
| 15 December | 75% = ₹94,650 | ₹30,000 | ₹64,650 | 3 months | ₹1,940* |
| 15 March | 100% = ₹1,26,200 | ₹75,000 | ₹51,200 | 1 month | ₹512 |
*Actual statutory computation is subject to the applicable rounding provisions.
Important 12% and 36% Relaxation
For determining interest for the first two instalments, the law provides an important tolerance.
Interest is not attracted for the relevant shortfall where advance tax paid by:
- 15 June is at least 12%, or
- 15 September is at least 36%
of the relevant tax amount, subject to the applicable statutory conditions.
This relaxation should not be confused with the normal advance-tax payment schedule of 15% and 45% respectively.
In the above example, the taxpayer had paid nothing by 15 June and only ₹30,000 by 15 September. Therefore, the tolerance thresholds are also not satisfied.
Interest for Overall Advance-Tax Default – Section 424
Corresponding provision: Section 234B of the Income-tax Act, 1961
Now consider the taxpayer’s position at the end of the financial year.
Advance-tax liability = ₹1,26,200
90% of ₹1,26,200 = ₹1,13,580
Advance tax actually paid = ₹75,000
Since the taxpayer has paid less than 90% of the relevant assessed tax, interest under Section 424 may become applicable.
Outstanding amount:
₹1,26,200 − ₹75,000 = ₹51,200
Assuming, purely for illustration, that this outstanding amount remains unpaid from 1 April until 5 August, interest would ordinarily be calculated for five months or parts thereof:
₹51,200 × 1% × 5 = ₹2,560
Therefore, the illustrative interest under Section 424 would be ₹2,560, subject to the final statutory computation and relevant adjustments.
What This Example Demonstrates
The example highlights an important distinction:
Section 425 (old Section 234C) examines whether advance-tax instalments were paid on time during the financial year.
Section 424 (old Section 234B) examines the overall advance-tax shortfall after the financial year, including whether the prescribed 90% threshold has been satisfied.
Therefore, paying some advance tax does not necessarily prevent interest under either provision.
Timely estimation and payment of the correct advance-tax instalments remains the safest way to minimise avoidable interest liability.
Special Relief from Interest for Certain Unexpected Income – Section 425
Corresponding provision: Section 234C of the Income-tax Act, 1961
Advance tax is based on an estimate of income. However, certain types of income may arise unexpectedly during the financial year and may not have been reasonably anticipated when earlier advance-tax instalments became due.
The law therefore provides relief from interest for deferment of advance tax in specified circumstances.
Broadly, the relief may apply where the shortfall in an advance-tax instalment is attributable to specified income such as:
- Capital gains
- Income of the nature referred to in the specified special-rate provisions
- Income under the head “Profits and Gains of Business or Profession” where such income arises for the first time during the year
- Dividend income, subject to the exclusions and conditions prescribed under the law
The relief is conditional. The taxpayer must pay the tax attributable to such income as part of the remaining advance-tax instalment(s) in accordance with the applicable provision.
Therefore, this relief should not be understood as a general exemption from advance tax on capital gains, dividends or other specified income.
It primarily protects the taxpayer from interest relating to an earlier instalment shortfall that arose because the income had not yet arisen or could not appropriately have been included at that stage, provided the statutory payment conditions are subsequently satisfied.
Example: Capital Gain Arising After an Earlier Instalment
Suppose a taxpayer has correctly estimated income and paid the required advance tax up to 15 December.
On 10 February, the taxpayer sells shares and earns a substantial capital gain that was not included in the earlier advance-tax estimate.
The taxpayer should recalculate the tax liability after including the capital gain and pay the additional tax attributable to that gain in the remaining advance-tax instalment due on 15 March.
Where the statutory conditions are satisfied, the earlier instalment shortfall attributable to this subsequently arising capital gain would not by itself attract interest for deferment merely because the gain was not included in instalments that became due before the gain arose.
What If the Income Arises Very Late in the Financial Year?
Where specified income arises after an earlier advance-tax instalment has already become due, the taxpayer should:
- Recalculate the estimated total income and tax liability immediately.
- Determine the additional tax attributable to the newly arising income.
- Pay the required amount within the time permitted under the applicable advance-tax and interest provisions.
- Preserve the computation and supporting records showing when the income arose.
Any tax paid by way of advance tax on or before 31 March is treated as advance tax paid during that financial year.
However, taxpayers should distinguish between:
treatment of a payment as advance tax, and
relief from interest for deferment of a particular instalment.
The latter depends upon satisfaction of the specific conditions contained in Section 425.
Practical Example
Suppose a taxpayer’s additional tax liability increases by ₹50,000 because of a capital gain arising on 12 March.
Since the income arose before the 15 March instalment date, the taxpayer should include the additional liability when determining the advance tax payable by 15 March.
Failure to appropriately account for the additional liability in the remaining instalment may result in interest consequences.
The key principle is therefore simple:
When unexpected taxable income arises, recalculate the advance-tax liability immediately rather than waiting to file the Income Tax Return.
Practical Compliance Tip
Whenever substantial unexpected income arises during the year:
- Identify the date on which the income arose.
- Recalculate the estimated annual tax liability.
- Determine the tax attributable to the additional income.
- Pay the appropriate amount in the remaining advance-tax instalment(s).
- Retain the calculation and supporting documents.
This is particularly important for investors because capital gains from shares, mutual funds or property can materially change the advance-tax liability during the year.
Advance Tax Compliance Checklist – Practical Steps to Avoid Interest.
Advance tax is based on estimated income, which means the calculation should not be treated as a one-time exercise at the beginning of the financial year.
Income, investments and TDS may change during the year. Taxpayers should therefore periodically review their position and revise any remaining advance-tax payments as needed
Read Also:-
Presumptive Taxation for Professionals in India (2026): Guide
1. Estimate Total Income from All Sources
Prepare a reasonable estimate of income expected during the financial year.
Depending upon the taxpayer’s circumstances, this may include:
- Salary or pension
- Business or professional income
- Rental income
- Bank and other interest
- Dividend income
- Capital gains
- Other taxable income
A common mistake is to calculate advance tax using only the taxpayer’s main source of income.
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2. Consider TDS and TCS While Calculating Advance Tax
Advance-tax liability should be determined after considering eligible tax deductible or collectible at source and other amounts permitted under the applicable computation provisions.
Salaried taxpayers, in particular, should not automatically assume that TDS deducted by the employer covers the entire year’s tax liability.
Income from investments, rent, capital gains or other sources may create an additional tax liability.
3. Review AIS and Form 26AS
The Annual Information Statement (AIS) and Form 26AS can help identify transactions and tax information reported to the Income Tax Department.
Reviewing these records periodically may help identify:
- Interest income
- Dividend income
- Securities transactions
- TDS/TCS information
- Other reported financial transactions
However, AIS and Form 26AS should be used as reconciliation tools. The taxpayer remains responsible for correctly determining total taxable income even where a transaction does not appear in these statements.
Read Also :-
AIS vs Actual Income – Common ITR Filing Mistakes in 2026
4. Recalculate Before Every Advance-Tax Instalment
Do not rely solely on an estimate prepared at the beginning of the year.
Before 15 June, 15 September, 15 December and 15 March, review:
- Income earned to date
- Expected income for the remaining year
- Capital gains or losses
- TDS/TCS available
- Advance tax already paid
- Revised estimated tax liability
The remaining instalments can then be adjusted appropriately.
5. Monitor Capital Gains Carefully
Capital gains from the sale of:
- Shares
- Mutual funds
- Property
- Other capital assets
can substantially alter the taxpayer’s tax liability.
Where such income arises during the year, recalculate the advance-tax position and consider the special rules applicable to subsequently arising income rather than waiting until the return is filed.
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6. Do Not Wait Until 15 March to Review the Entire Liability
Paying the entire amount by 15 March does not necessarily eliminate interest arising from shortfalls in earlier instalments.
Taxpayers covered by the normal four-instalment system should therefore follow the prescribed advance-tax schedule instead of deliberately postponing the entire payment until March.
The position is different for eligible taxpayers covered by the special presumptive-tax payment rule discussed earlier.
7. Remember the Difference Between 15 March and 31 March
15 March is the final prescribed instalment date under the normal advance-tax schedule.
A payment made by way of advance tax up to 31 March may still be treated as advance tax for that financial year.
However, payment after an earlier prescribed instalment date does not automatically remove interest that may already have arisen because of deferment.
8. Keep Proper Records
Maintain records of:
- Income estimates and revised calculations
- Advance-tax challans
- TDS/TCS details
- Capital-gain computations
- AIS and Form 26AS reconciliation
- Supporting documents for substantial changes in income
These records can be useful while preparing the Income Tax Return and explaining the basis of the advance-tax computation if any question subsequently arises.
Common Advance Tax Mistakes to Avoid
The most frequent mistakes can be summarised as follows:
| Common Mistake | Possible Consequence |
| Assuming TDS covers the entire tax liability | Additional advance-tax shortfall |
| Ignoring interest, rent, dividends or capital gains | Underestimation of income and tax |
| Not revising estimates during the year | Shortfall in later instalments |
| Waiting until March to calculate advance tax | Possible deferment interest |
| Confusing the 90% test with instalment percentages | Incorrect interest calculation |
| Assuming payment by 31 March removes all earlier defaults | Incorrect interpretation of the advance-tax rules |
| Not checking AIS/Form 26AS | Income or tax-credit reconciliation issues |
| Failing to retain challans and calculations | Difficulty reconciling tax payments while filing the return |
Key Takeaway
Advance-tax compliance is primarily an exercise in continuous estimation and timely adjustment.
The safest approach is to review income and tax liability before every instalment date, account for new sources of income as they arise, verify available tax credits and maintain proper records.
This can substantially reduce the risk of avoidable interest and last-minute tax payments.
How TDS Advance Tax and Self-Assessment Tax Work Together
Income tax may be collected or paid at different stages. Understanding the distinction between TDS, Advance Tax and Self-Assessment Tax helps taxpayers determine when and why a particular tax payment is required.
1 Tax Deducted at Source (TDS)
Under the TDS mechanism, tax is deducted by the payer while making or crediting specified payments.
Common examples include:
- Salary
- Interest
- Professional or contractual payments
- Rent and other specified payments
TDS represents tax already collected against the taxpayer’s eventual tax liability.
However, the existence of TDS does not necessarily mean that the taxpayer has no advance-tax obligation. If the remaining advance-tax liability after considering eligible TDS/TCS and other permissible adjustments reaches the prescribed threshold, advance tax may still become payable.
2. Advance Tax
Advance tax is tax paid during the financial year in which the income is earned.
It is based on the taxpayer’s estimated income and tax liability and, where applicable, is paid according to the prescribed instalment schedule.
The objective is to spread the payment of tax over the financial year instead of leaving the entire liability until the Income Tax Return is filed.
3. Self -Assessment Tax
After the financial year ends, the taxpayer computes the final tax liability while preparing the Income Tax Return.
After considering applicable amounts such as:
- TDS/TCS
- Advance tax already paid
- Eligible tax credits
- Applicable interest and other amounts
if a balance remains payable, the taxpayer may be required to discharge it as self-assessment tax before furnishing the return, in accordance with the applicable provisions.
Therefore, self-assessment tax is essentially the balance determined at the return-filing stage after taking into account taxes and credits already available.
4.Regular Tax/Tax Payable After Assessment
A further tax liability may arise after processing, assessment, reassessment or another proceeding by the Income Tax Department.
For example, the Department may determine additional tax because of:
- An adjustment to returned income
- Disallowance of a deduction or claim
- Addition of income
- Reassessment
- Other assessment proceedings
Such a demand is conceptually different from advance tax and self-assessment tax because it arises pursuant to action taken by the tax authorities after the taxpayer’s return or tax position is examined or processed.
Quick Comparison
| Particular | TDS/TCS | Advance Tax | Self-Assessment Tax | Tax Payable After Assessment |
| When | During specified transactions/payments | During the financial year | Before furnishing the return, where balance tax remains payable | After departmental processing/assessment or other proceedings |
| Who initiates payment/collection | Generally payer/collector under statutory provisions | Taxpayer | Taxpayer | Arises pursuant to departmental determination |
| Purpose | Collection of tax at source | Pay tax as income is earned | Discharge final balance before filing return | Discharge additional demand determined subsequently |
| Basic character | Tax collected/deducted at source | Estimated tax paid during the year | Balance tax based on final return computation | Additional liability arising from departmental action |
Simple Illustration
Suppose a taxpayer’s estimated annual tax liability is ₹1,50,000 and eligible TDS available during the year is ₹50,000.
The remaining estimated liability is ₹1,00,000.
Subject to the applicable provisions, this remaining amount may need to be discharged through advance-tax instalments during the financial year.
Later, while preparing the Income Tax Return, assume the final computation shows an additional balance of ₹8,000 after considering TDS, advance tax and other applicable amounts.
The taxpayer would generally need to discharge the remaining amount, together with any applicable interest or other liability, before furnishing the return.
The sequence can therefore be understood simply as:
TDS/TCS → Advance Tax → Final Return Computation → Self-Assessment Tax, if any → Departmental Assessment/Demand, if any
Key Takeaway
TDS and advance tax are mechanisms for collecting tax during the year, whereas self-assessment tax generally clears the remaining liability determined while preparing the return.
A taxpayer should therefore consider all taxes already deducted, collected or paid before determining the remaining amount payable.
Can the Assessing Officer Require a Taxpayer to Pay Advance Tax?
Yes. Although advance tax generally operates through self-estimation and voluntary payment, the Income-tax Act also empowers the Assessing Officer (AO) to require payment of advance tax in specified circumstances.
Under the Income-tax Act, 2025, the relevant provisions are primarily contained in:
- Section 406 – Payment of advance tax by assessee on his own accord
- Section 407 – Payment of advance tax by assessee in pursuance of an order of the Assessing Officer
These provisions broadly correspond to Section 210 of the Income-tax Act, 1961.
Payment on the Taxpayer’s Own Estimate – Section 406
A taxpayer who is liable to pay advance tax should ordinarily estimate the current income and determine the advance tax payable in accordance with the applicable provisions.
Since advance tax is based on estimated current income, the taxpayer should revise the estimate during the year if income materially increases or decreases.
This is particularly relevant where there is:
- Significant growth or decline in business income
- Additional professional or freelance receipts
- Capital gains
- Rental or investment income
- Other substantial changes in taxable income
The objective is to ensure that advance tax reflects the taxpayer’s reasonably estimated current-year liability rather than relying solely on previous-year figures.
Advance-Tax Order by the Assessing Officer – Section 407
In specified circumstances, the Assessing Officer may issue an order requiring a taxpayer to pay advance tax.
Such an order may be based on the taxpayer’s earlier assessed or returned income and the information available with the Income Tax Department, subject to the conditions prescribed under the law.
The order determines the advance tax payable and requires payment through the applicable instalments.
What If the Taxpayer’s Own Estimate Is Lower?
An important protection is available to the taxpayer.
If the taxpayer estimates that the current year’s income will be lower than the amount forming the basis of the Assessing Officer’s order, the taxpayer may submit the prescribed estimate/intimation and pay advance tax on the basis of the taxpayer’s own estimate, subject to compliance with the applicable procedure.
Therefore, an AO’s advance-tax order does not necessarily mean that the taxpayer must blindly accept an income estimate that is inconsistent with the expected current-year income.
However, the revised estimate should be made carefully and on a reasonable basis.
If the taxpayer substantially underestimates the liability, applicable interest consequences may arise.
What If the Taxpayer Estimates Higher Income?
Conversely, where the taxpayer’s estimated current income is higher than the amount on which the Assessing Officer’s order is based, the taxpayer should determine and pay the appropriate higher advance tax in accordance with the applicable provisions.
The purpose of advance tax remains the same: tax should broadly follow the income expected to be earned during the year.
Practical Example
Suppose the Assessing Officer determines advance tax on the basis of an earlier year’s income of ₹15 lakh.
During the current year, however, the taxpayer’s business has declined substantially and the taxpayer reasonably estimates income at only ₹9 lakh.
Subject to the prescribed procedure, the taxpayer may furnish the required estimate/intimation and determine advance tax on the basis of the lower current-year estimate.
On the other hand, if current-year income is expected to be ₹20 lakh, the taxpayer should not restrict advance-tax payment merely to the lower amount reflected in the AO’s order.
Practical Significance
For most taxpayers, advance tax continues to operate primarily through self-estimation and voluntary compliance.
Nevertheless, the AO-order provisions remain important because they allow the Department to intervene where the statutory conditions are satisfied.
The taxpayer should therefore:
- Review any advance-tax order carefully.
- Compare it with the expected current-year income.
- Follow the prescribed procedure where a different estimate is being adopted.
- Maintain supporting calculations for the estimate.
- Pay the appropriate instalments within the prescribed dates.
Key Takeaway
Advance tax is fundamentally based on the taxpayer’s current-year income, not simply on historical income.
An Assessing Officer may issue an advance-tax order in accordance with the law, but the statutory framework also recognises that the taxpayer’s actual estimate for the current year may differ.
A reasonable and properly documented current-income estimate is therefore essential.
When is a Taxpayer Treated as an Assessee in Default ?
The expression “assessee in default” has a specific legal significance under the income-tax framework.
For advance-tax purposes, it is important to distinguish between:
- Default relating to an advance-tax requirement;
- Default in paying a tax demand raised by the Income Tax Department; and
- Interest arising because advance tax was insufficient or its instalments were deferred.
These consequences arise under different provisions.
Section 409 – Default Relating to Advance Tax
Corresponding provision: Section 218 of the Income-tax Act, 1961
Section 409 deals with circumstances in which an assessee may be treated as being in default in relation to advance tax.
This provision is particularly relevant where advance tax becomes payable pursuant to the statutory advance-tax mechanism, including an order of the Assessing Officer, and the required amount is not paid in accordance with the applicable provisions.
It should not be assumed that every shortfall in an estimated advance-tax instalment automatically has exactly the same legal consequence.
The nature of the obligation, the applicable provision and the facts of the case must be examined.
Section 411 – Tax Payable and Assessee Deemed to Be in Default
Corresponding provision: Section 220 of the Income-tax Act, 1961
Section 411 deals with a different stage of tax compliance.
Where tax, interest or another amount becomes payable pursuant to a statutory demand, the taxpayer is required to discharge that amount within the period prescribed under the applicable provision or demand.
Failure to pay within the permitted period may result in the taxpayer being treated as an assessee in default, along with the applicable interest and recovery consequences.
Therefore, Section 411 should not be confused with the normal advance-tax instalment provisions.
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Advance-Tax Interest Is a Separate Concept
Two other provisions discussed earlier in this guide deal specifically with interest:
- Section 424 – corresponding to old Section 234B – deals with specified defaults in payment of advance tax.
- Section 425 – corresponding to old Section 234C – deals with deferment of advance-tax instalments.
Accordingly, a taxpayer should not treat the expressions “assessee in default,” “short payment of advance tax,” and “deferment of advance-tax instalments” as interchangeable.
Each has to be examined under the provision applicable to the particular situation.
Quick Comparison
| Provision – Income-tax Act, 2025 | Corresponding 1961 Act Provision | Main Subject |
| Section 409 | Section 218 | Assessee deemed in default in relation to advance tax |
| Section 411 | Section 220 | Tax payable pursuant to demand and consequences of default |
| Section 424 | Section 234B | Interest for specified default in payment of advance tax |
| Section 425 | Section 234C | Interest for deferment of advance-tax instalments |
Practical Takeaway
A taxpayer who misses or underpays advance tax should first determine which provision applies rather than simply assuming that every shortfall constitutes the same type of default.
For practical purposes:
Sections 424 and 425 primarily address interest consequences connected with advance tax, whereas Sections 409 and 411 deal with statutory default situations under their respective circumstances.
Understanding this distinction prevents taxpayers from confusing an interest liability with a separate default or recovery proceeding.
Credit for Advance Tax Paid – Section 410
Corresponding provision: Section 219 of the Income-tax Act, 1961
Advance tax paid during the financial year is not an additional tax over and above the taxpayer’s final income-tax liability.
It represents tax paid in advance and is taken into account while determining the tax payable for the relevant tax year in accordance with the applicable provisions.
Therefore, when the taxpayer prepares the Income Tax Return, advance tax already paid should be considered together with other eligible tax payments and credits while determining the final amount payable or refundable.
Simple Example
Suppose a taxpayer’s final tax computation shows a tax liability of ₹1,20,000.
During the year:
- Eligible TDS/TCS available = ₹40,000
- Advance tax paid = ₹60,000
Total taxes already available for adjustment:
₹40,000 + ₹60,000 = ₹1,00,000
Before considering any other applicable amounts, adjustments or interest, the remaining tax difference would be:
₹1,20,000 − ₹1,00,000 = ₹20,000
The final amount payable should then be determined after considering all other applicable provisions.
The important principle is that advance tax already paid is given appropriate credit while determining the taxpayer’s final tax position.
Verify Advance-Tax Credit Before Filing the Return
Taxpayers should not rely only on their personal payment records.
Before filing the Income Tax Return, reconcile advance-tax payments with the tax information available through the Income Tax Department’s systems and retain the relevant challans.
Check important details such as:
- PAN
- Assessment/tax year selected while making payment
- Amount paid
- Date of payment
- Challan/payment details
If a payment is missing or incorrectly reflected, investigate the discrepancy before finalising the return.
Why Proper Challan Details Matter
An error while making the tax payment—for example, selecting an incorrect year or entering incorrect payment particulars—may create difficulty when claiming or reconciling the credit.
Taxpayers should therefore verify the challan immediately after making an advance-tax payment and preserve the payment acknowledgement.
Key Takeaway
Advance tax is tax paid ahead of the final return computation.
The amount paid is taken into account while determining the taxpayer’s final tax liability for the relevant year. Proper reconciliation of advance-tax payments before filing the return helps prevent avoidable tax-credit mismatches and incorrect demands.
How to Pay Advance Tax in 2026
Advance tax can be paid through the e-Pay Tax facility of the Income Tax e-Filing portal.
The facility can be accessed either:
- Pre-login, without logging into the taxpayer’s account; or
- Post-login, through the taxpayer’s e-Filing account.
A Challan/CRN should be generated through the e-Pay Tax functionality before completing the payment.
Step-by-Step Process
Step 1 – Open the Income Tax e-Filing Portal
Visit the official Income Tax e-Filing portal and select e-Pay Tax.
Taxpayers using the post-login facility can access the e-Pay Tax service after logging into their account.
Step 2 – Select the Applicable Income-tax Act and Year
For payments relating to Assessment Year 2026-27 and earlier years, select the applicable option under the Income-tax Act, 1961.
For payments relating to Tax Year 2026-27 onwards, select the applicable option under the Income-tax Act, 2025.
Carefully verify the relevant Assessment Year/Tax Year before proceeding.
Step 3 – Select the Appropriate Tax Payment Category
Select the applicable Income Tax payment category and the appropriate payment particulars for advance tax.
The portal will require the taxpayer to select the relevant year, applicable payment head and other required details.
Always verify these particulars carefully before generating the challan.
Step 4 – Enter the Tax Amount
Enter the amount being paid and complete the required tax-breakup details.
Review the amount before continuing to the payment stage.
Available Modes of Payment
The e-Pay Tax system currently provides five principal payment modes:
- Net Banking
- Debit Card
- Pay at Bank Counter
- RTGS/NEFT
- Payment Gateway
The Payment Gateway option may provide payment through methods such as:
- Net Banking
- Debit Card
- Credit Card
- UPI
The availability of individual banking options may depend upon the bank and payment mode selected.
Can Advance Tax Be Paid by Cheque?
Yes, subject to the applicable conditions.
A taxpayer eligible to use the Pay at Bank Counter facility can generate the required Challan/CRN through the e-Pay Tax service and make payment at the branch of the Authorised Bank selected while generating the challan.
The bank-counter facility permits payment through:
- Cash
- Cheque
- Demand Draft
However, the taxpayer must first generate the Challan/CRN through the e-Pay Tax facility. A manually prepared challan should not be used in place of the prescribed portal-generated challan.
Important Restriction on Bank-Counter Payments
The Pay at Bank Counter facility cannot be used by:
- A company, or
- A person other than a company to whom the prescribed tax-audit provisions under Section 63 of the Income-tax Act, 2025 apply,
in accordance with the applicable Income-tax Rules.
Such taxpayers should use the permitted electronic payment modes.
Cash Payment Limit
Where the taxpayer is otherwise eligible to use the Pay at Bank Counter facility, payment through cash exceeding ₹10,000 is not permitted under this mode.
Cheque and Demand Draft payments are subject to the applicable banking and payment requirements.
What If Your Bank Is Not Available for Direct Tax Payment?
Where the taxpayer’s bank is not available for the desired direct payment mode, the taxpayer may consider the available:
- RTGS/NEFT, or
- Payment Gateway
options provided through the e-Pay Tax facility.
This allows taxpayers to make tax payments even where their bank is not directly available under a particular authorised-bank payment option.
Download and Preserve the Challan Receipt
After successful payment, the taxpayer should retain the Challan Receipt/payment acknowledgement.
Payment details and the challan receipt can also be accessed through the Payment History section of the e-Pay Tax facility after login.
Verify important particulars such as:
- PAN
- Tax/Assessment Year
- Nature of payment
- Amount
- Date of payment
- Challan details
Any discrepancy should be investigated promptly rather than waiting until the Income Tax Return is filed.
Practical Tip
Do not wait until the final hours of an advance-tax due date to initiate payment.
Bank processing, payment-gateway issues or an incorrectly generated challan may create avoidable difficulties.
Where possible, complete the payment sufficiently before the statutory deadline and verify that the transaction has been successfully completed.
Conclusion
Advance tax is an important part of India’s “Pay as You Earn” income-tax framework. Instead of postponing the entire tax payment until the Income Tax Return is filed, taxpayers who satisfy the prescribed conditions are required to estimate their tax liability and pay advance tax during the financial year.
Under the Income-tax Act, 2025, the principal advance-tax provisions are contained in Sections 403 to 410, while Section 411 deals with tax payable and the assessee-in-default consequences in the circumstances specified therein. Sections 423, 424 and 425 deal with important interest consequences connected with return filing and advance-tax defaults.
Effective advance-tax compliance requires taxpayers to:
- Estimate income from all taxable sources.
- Consider eligible TDS/TCS and applicable tax credits.
- Review the estimate before each instalment date.
- Monitor capital gains and other income arising during the year.
- Pay the required advance-tax instalments on time.
- Reconcile tax payments before filing the return.
- Preserve challans and supporting calculations.
Taxpayers should particularly remember that overall short payment of advance tax and deferment of individual instalments are separate concepts. Payment of the entire amount later does not necessarily eliminate interest that may already have arisen because an earlier instalment was insufficient.
Similarly, although an amount paid by way of advance tax on or before 31 March may be treated as advance tax for that financial year, this does not automatically remove interest consequences relating to earlier instalment shortfalls.
The most effective approach is therefore simple:
Estimate early, review periodically, revise when income changes and pay the appropriate advance tax within the prescribed timelines.
Good advance-tax planning not only reduces avoidable interest but also prevents a substantial tax burden from accumulating at the time of filing the Income Tax Return.
Read Also:-
Income-Tax Notice Received in 2026? Complete Guide for Notices u/s 139(9), 143(1), 148
Frequently Asked Questions (FAQs)
1. What is advance tax?
Advance tax is income tax paid during the financial year in which income is earned, rather than paying the entire tax liability at the time of filing the Income Tax Return.
It reflects the principle of “Pay as You Earn.”
2. Who is required to pay advance tax?
Under the Income-tax Act, 2025, advance tax is generally payable where the advance-tax liability is ₹10,000 or more during the financial year, subject to the applicable provisions and exemptions.
The liability can arise for salaried individuals, businesses, professionals, investors, landlords and other taxpayers depending upon their income and available TDS/TCS or other applicable credits.
3. Are senior citizens required to pay advance tax?
A resident individual who is 60 years or above during the relevant tax year and does not have income chargeable under the head “Profits and Gains of Business or Profession” is not required to pay advance tax.
Therefore, the exemption should not automatically be applied to a senior citizen who has business or professional income.
4. What are the advance-tax due dates?
For taxpayers covered by the normal instalment schedule, the cumulative advance-tax requirements are:
- 15 June – at least 15%
- 15 September – at least 45%
- 15 December – at least 75%
- 15 March – 100%
Eligible taxpayers covered by the specified presumptive-tax provisions may be permitted to pay the whole advance-tax amount by 15 March, subject to the applicable law.
5. What happens if advance tax is not paid on time?
Interest may arise under the applicable provisions.
Under the Income-tax Act, 2025:
- Section 424 deals with specified defaults in payment of advance tax and broadly corresponds to Section 234B of the Income-tax Act, 1961.
- Section 425 deals with deferment of advance-tax instalments and broadly corresponds to Section 234C of the Income-tax Act, 1961.
The actual interest depends upon the nature and amount of the shortfall and the applicable statutory conditions.
6. Do salaried employees also have to pay advance tax?
Yes, where the prescribed conditions are satisfied.
TDS deducted by an employer may cover the tax on salary, but a salaried taxpayer may have additional income from:
- Bank interest
- Dividends
- Capital gains
- Rent
- Freelance or professional activities
- Other taxable sources
If the resulting advance-tax liability reaches the prescribed threshold, advance tax may become payable.
7. Can advance tax be paid after 15 March?
Yes. An amount paid by way of advance tax on or before 31 March is treated as advance tax paid during that financial year.
However, payment after 15 March does not automatically eliminate interest that may arise because the prescribed advance-tax instalments were not paid on time.
8. What happens if an unexpected capital gain arises during the year?
Where capital gains or other specified income arises after earlier advance-tax instalments have become due, special provisions may provide relief from interest attributable to earlier instalment shortfalls, subject to satisfaction of the prescribed conditions.
The taxpayer should recalculate the tax liability immediately and pay the additional amount through the remaining applicable advance-tax instalment(s).
9. Can an advance-tax estimate be revised during the year?
Yes. Advance tax is based on estimated current-year income. If income increases or decreases during the year, the taxpayer should revise the estimate and adjust the remaining advance-tax payments accordingly.
10. How can advance tax be paid?
Advance tax can be paid through the e-Pay Tax facility on the Income Tax e-Filing portal.
Depending upon eligibility and the options available, payment modes include:
- Net Banking
- Debit Card
- Payment Gateway
- RTGS/NEFT
- Pay at Bank Counter
The taxpayer should carefully verify the applicable Income-tax Act, Tax Year/Assessment Year, nature of payment, PAN and amount before completing the transaction and should retain the payment acknowledgement.
Disclaimer
This publication is intended solely for informational and educational purposes and does not constitute professional, legal, tax, or financial advice. While reasonable care has been taken to ensure the accuracy and relevance of the information at the time of publication, tax laws, rules, notifications, circulars and judicial interpretations may change over time. The views and opinions expressed herein reflect the author’s understanding at the time of publication and are subject to change without notice.
Readers are strongly advised to seek independent professional advice before making any decision or taking any action based on the information contained in this publication. The author and publisher expressly disclaim any responsibility or liability for any loss, damage, or consequence arising directly or indirectly from reliance on this content or from any action taken or not taken based on it.