Advance Tax Interest Computation Guide for FY 2024-25
- Rashmita Choudhary
- Nov 6, 2025
- 10 min read
Advance tax is the portion of income tax paid in advance during the financial year instead of a single lump-sum payment at year-end. For FY 2024-25 (AY 2025-26), taxpayers must estimate their total income and pay tax in quarterly installments. Missing or underpaying these installments triggers interest under Sections 234B and 234C of the Income Tax Act, 1961. These provisions ensure timely tax collection and discourage deferring payments to the end of the year.
Paying advance tax on time helps avoid unnecessary interest and ensures smoother financial planning throughout the year. For those uncertain about calculations, platforms like TaxBuddy provide automated interest computation tools that simplify compliance and ensure accuracy.
Table of Contents
Understanding Advance Tax for FY 2024-25
Advance tax is the system of paying tax on income as it is earned, rather than at the end of the financial year. It is applicable when the total tax liability for the year exceeds ₹10,000 after deducting TDS and other credits. The primary objective of advance tax is to ensure timely revenue collection for the government and to reduce the burden of lump-sum payments for taxpayers at year-end. It applies to individuals, businesses, and freelancers whose income is not fully covered by TDS.
Meaning and Applicability under the Income Tax Act
Advance tax, also called “pay-as-you-earn tax,” is governed by Sections 207 to 211 of the Income Tax Act, 1961. It applies to all categories of taxpayers—salaried, self-employed, or businesses—whose estimated tax liability exceeds ₹10,000. Senior citizens aged 60 years or above without business income are exempt. Taxpayers are required to estimate their income, compute tax liability, and make payments in installments on specified dates.
Who Needs to Pay Advance Tax
Advance tax is applicable to individuals, HUFs, companies, and professionals earning income beyond TDS coverage. Salaried individuals with additional income sources like rent, interest, or capital gains must also pay advance tax if their total liability exceeds ₹10,000. Freelancers and business owners who receive income without TDS deductions are typically the main category required to pay advance tax quarterly.
Due Dates and Installment Percentages for FY 2024-25
The Income Tax Department specifies advance tax payment due dates and installment percentages:
15% of total tax liability by June 15, 2024
45% by September 15, 2024
75% by December 15, 2024
100% by March 15, 2025
Failure to adhere to these deadlines results in interest penalties under Sections 234B and 234C.
Quarterly Payment Schedule
Advance tax payments are made quarterly in the same financial year. Each installment represents a percentage of the total tax liability based on the taxpayer’s income estimate at that stage. Payments can be made online through the income tax e-filing portal or authorized banks.
Applicability for Salaried, Business, and Freelancers
Salaried individuals usually pay tax through TDS deducted by employers. However, if they have other income like rent, savings interest, or capital gains, they must pay advance tax. Businesses and freelancers, with fluctuating incomes, need to estimate and pay tax every quarter based on earnings till that period.
Interest on Advance Tax under Section 234B
Section 234B imposes interest when a taxpayer fails to pay at least 90% of their total tax liability before the financial year ends. The interest is charged at 1% per month or part thereof from April 1 of the next financial year until the tax is fully paid.
When Section 234B Applies
This section applies if:
No advance tax is paid, or
The amount paid is less than 90% of the total tax due.
The interest continues until the remaining tax is cleared.
Step-by-Step Calculation Process
Compute total tax liability based on estimated income.
Deduct TDS and advance tax already paid.
Calculate shortfall, if any.
Apply 1% interest per month on the unpaid amount from April 1 till the date of payment.
Example of Interest Calculation under Section 234B
Suppose a taxpayer’s total liability is ₹1,00,000, and only ₹70,000 has been paid by March 31. Shortfall = ₹30,000 Interest = ₹30,000 × 1% × 3 months = ₹900 (if paid in June).
Interest on Advance Tax under Section 234C
Section 234C levies interest when advance tax installments are not paid as per the prescribed schedule. The rate is 1% per month for three months on the shortfall for the first three installments and one month for the last installment.
When Section 234C Applies
It applies when taxpayers fail to pay the prescribed percentage of total tax by each quarterly due date.
Calculation for Each Installment
By June 15 – 15% of tax due
By September 15 – 45% of tax due
By December 15 – 75% of tax due
By March 15 – 100% of tax due
Interest is calculated at 1% on the difference between required and paid amounts for the delay period.
Example of Interest Calculation under Section 234C
If a taxpayer pays ₹20,000 instead of ₹25,000 by June 15 (where ₹25,000 was 15% of the total due), the shortfall is ₹5,000. Interest = ₹5,000 × 1% × 3 months = ₹150.
How to Compute Total Advance Tax Interest
Add interest under both Sections 234B and 234C for total liability. For example, if interest under Section 234B is ₹900 and under Section 234C is ₹450, total interest = ₹1,350.
Combined Impact of Section 234B and 234C
If taxpayers miss both timely payments and the overall 90% requirement, both sections apply simultaneously.
Sample Calculation Table for FY 2024-25
Due Date | % of Tax Payable | Interest for Delay |
Jun 2025 | 15% | 1% per month for 3 months |
Sept 15 | 45% | 1% per month for 3 months |
Dec 15 | 75% | 1% per month for 3 months |
Mar 15 | 100% | 1% per month for 1 month |
How to Avoid Interest on Advance Tax
Timely and accurate estimation of income is key to avoiding penalties. Use last year’s data, current earnings, and any additional income sources to forecast your total liability correctly.
Estimating Income and Deductions Accurately
Include salary, rent, business income, capital gains, and interest in estimates. Adjust for exemptions, deductions, and rebates to compute the correct advance tax.
Monitoring TDS Credits and Adjustments
Regularly verify TDS credits in Form 26AS or AIS and adjust your advance tax accordingly to avoid overpayment or shortfall.
Tips for Timely Payment and Corrections
Use challan ITNS 280 for payments.
Pay before deadlines to avoid monthly interest.
Recalculate after major financial changes.
Maintain records for verification.
Is Interest on Advance Tax Applicable Under the New Tax Regime?
Yes, the advance tax provisions apply under both the old and new regimes. The difference lies in how deductions affect estimated income. In the new regime, fewer deductions are available, leading to simpler computations.
Clarifying Applicability under Section 115BAC
Section 115BAC only changes tax rates and deductions but not the obligation to pay advance tax. Interest under Sections 234B and 234C applies equally under both regimes.
Comparison with Old Tax Regime Rules
Under the old regime, deductions and exemptions reduce taxable income, affecting advance tax calculations. Under the new regime, simplified rates apply but without most exemptions.
Advance Tax Calculation Example for FY 2024-25
Suppose a freelancer expects total income of ₹12,00,000 with no TDS. Tax liability (old regime): ₹1,37,500 Installments:
June 15: ₹20,625
Sept 15: ₹61,875
Dec 15: ₹1,03,125
Mar 15: ₹1,37,500
Any delay results in monthly interest under Sections 234B and 234C.
Stepwise Illustration Using Realistic Figures
If the taxpayer pays ₹1,00,000 instead of ₹1,37,500 by March 15, the shortfall is ₹37,500. Interest under 234B = ₹37,500 × 1% × 3 months = ₹1,125.
Computation of Total Interest Payable
Combine interest under both sections for the final liability.
Role of TaxBuddy in Advance Tax Interest Computation
TaxBuddy provides AI-driven tools that automatically calculate interest under Sections 234B and 234C. It evaluates your income sources, TDS credits, and due dates to generate accurate estimates and payment reminders.
Automated Tools for Section 234B and 234C Calculation
The platform auto-updates calculations using real-time data and ensures accurate reporting during ITR filing.
Expert Review for Error-Free Tax Payments
TaxBuddy’s experts review the taxpayer’s computations, verify income details, and ensure proper credit for payments to prevent mismatches with AIS.
Benefits of Using TaxBuddy for Advance Tax and ITR Filing
Accurate estimation of tax and interest
On-time payment reminders
Compliance with all sections
Seamless integration with ITR filing
Conclusion
Understanding advance tax and the related interest provisions under Sections 234B and 234C is crucial for accurate tax compliance. Timely payments and proper estimation help taxpayers avoid penalties and ensure smooth financial planning. Platforms like TaxBuddy make this easier with automated calculators, expert verification, and real-time filing support.
For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. What is the interest rate on late or short advance tax payments for FY 2024-25? If a taxpayer fails to pay advance tax or pays less than the required amount, interest is charged under Sections 234B and 234C of the Income Tax Act. The applicable rate is 1% per month or part of a month on the unpaid amount. Section 234B applies to cases where the total advance tax paid is less than 90% of the assessed tax, while Section 234C applies to shortfalls in quarterly instalments. Both sections aim to ensure timely and proportionate tax payments throughout the year.
Q2. Is interest under Sections 234B and 234C calculated on a compound basis? No, the interest under both Sections 234B and 234C is charged on a simple interest basis, not compounded. This means the interest is computed only on the principal tax shortfall for each month or part thereof, without adding previously accrued interest. The straightforward calculation helps maintain transparency and predictability in advance tax computations.
Q3. What happens if advance tax is paid after March 15 but before March 31? If the taxpayer pays the advance tax after March 15 but before March 31, Section 234C interest for the last instalment may not be applicable, as long as the full amount is cleared before the end of the financial year. However, interest under Section 234B may still apply if the total advance tax paid is less than 90% of the assessed tax. Timely payment before March 31 ensures lower overall interest liability.
Q4. Do I need to pay advance tax if my tax liability is less than ₹10,000? No, individuals are not required to pay advance tax if their total tax liability after accounting for TDS and TCS is less than ₹10,000 in a financial year. This exemption generally benefits salaried taxpayers whose employers deduct TDS accurately. However, self-employed individuals and freelancers must review their income quarterly to ensure they don’t exceed this threshold during the year.
Q5. How does TDS affect advance tax interest calculations? Tax Deducted at Source (TDS) directly reduces the total advance tax liability. When computing advance tax or related interest under Sections 234B and 234C, the taxpayer must first deduct TDS from their total tax payable. Interest applies only to the remaining amount. For example, if total tax payable is ₹1,00,000 and ₹70,000 is already deducted as TDS, advance tax liability and related interest will apply only to the remaining ₹30,000.
Q6. How is interest under Section 234B calculated? Section 234B interest applies when at least 90% of the total tax liability is not paid by the end of the financial year. The interest is calculated at 1% per month from April 1 of the following financial year until the date of actual payment of self-assessment tax. The formula is: Interest = 1% × (Assessed Tax – Advance Tax Paid) × Number of Months.
Q7. How is interest under Section 234C calculated? Section 234C deals with shortfall or delay in quarterly advance tax instalments. The prescribed due dates are June 15 (15%), September 15 (45%), December 15 (75%), and March 15 (100%). If the taxpayer pays less than the required percentage by each due date, interest at 1% per month for three months (except the last instalment) is charged on the shortfall amount. For the March 15 instalment, interest applies for one month only.
Q8. Are senior citizens required to pay advance tax? Resident senior citizens (aged 60 years or above) who do not have income from business or profession are exempt from paying advance tax. They can pay their total tax liability as self-assessment tax before filing their income tax return. However, if they earn business income, they must pay advance tax like other taxpayers to avoid interest charges under Sections 234B and 234C.
Q9. Can I avoid advance tax interest by paying the entire tax in one go before March 31? Paying the entire tax before March 31 can help avoid interest under Section 234B if at least 90% of the total tax is paid within the financial year. However, Section 234C interest may still apply if earlier quarterly instalments were missed or short-paid. It’s best to make timely quarterly payments to reduce both interest and compliance risks.
Q10. What if my income fluctuates during the year and I underpay advance tax unintentionally? If your income varies across quarters—such as through bonuses, capital gains, or business profits—you can revise advance tax payments in subsequent instalments. The Income Tax Act allows adjustments in later quarters to compensate for earlier shortfalls. While this doesn’t eliminate interest under Section 234C for missed earlier instalments, it helps avoid higher interest accumulation later.
Q11. How can I check whether interest under Sections 234B or 234C applies to me? You can calculate advance tax interest using online tools or tax-filing platforms like TaxBuddy. These tools automatically compute interest based on your income details, TDS credits, and payment dates. TaxBuddy, for instance, instantly identifies applicable interest under each section and shows the breakdown, ensuring transparency and accurate reporting in your ITR.
Q12. Can TaxBuddy help calculate and file advance tax accurately? Yes, TaxBuddy offers an AI-assisted tax computation system that automatically tracks income, TDS, and tax liabilities throughout the year. It calculates advance tax instalments and interest under Sections 234B and 234C in real time, helping users pay the right amount before deadlines. With expert-assisted plans, taxpayers also receive professional guidance to ensure compliance, reduce interest liability, and avoid notices.
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