Advance Tax, Self-Assessment Tax, and Refunds

Learning Objectives

• Understand who must pay advance tax and when the obligation triggers
• Apply the four-instalment schedule with correct cumulative percentages and due dates
• Compute interest under Section 234B (overall shortfall) and Section 234C (instalment shortfall)
• Pay advance tax via ITNS 280 challan and record it in the ITR
• Understand how TDS on salary satisfies advance tax for salaried employees
• Build Kiran Sharma's complete advance tax schedule for FY 2025-26

What Is Advance Tax?

The Indian income tax system operates on a pay-as-you-earn principle. Rather than paying all tax at the end of the year when the ITR is filed, taxpayers with non-salary income must estimate their income and pay tax in advance, in quarterly instalments throughout the financial year.

This ensures the government receives tax revenue throughout the year — not in a lump sum after 31 March.

Who Must Pay Advance Tax?

Advance tax is mandatory for any taxpayer whose estimated tax liability after TDS exceeds ₹10,000.

The key calculation:

Estimated annual tax
LESS: TDS already deducted or expected to be deducted
= Residual advance tax liability

If the residual exceeds ₹10,000 → advance tax is mandatory.

Advance Tax Instalment Schedule

Advance tax for FY 2025-26 is paid in four instalments:

The percentages are cumulative — if you skip June (15%) and catch up by September, you avoid the 234C interest for September if the cumulative total reaches 45% by 15 September. However, the June shortfall has already accrued 3 months of interest.

Presumptive Taxpayers — Single Instalment

Taxpayers under Section 44AD or 44ADA pay 100% in a single instalment by 15 March. No quarterly instalments are required.

Interest for Non-Payment or Short Payment

Section 234B — Overall Shortfall in Advance Tax

Triggered when total advance tax paid by 31 March is less than 90% of the assessed tax:

• Rate: 1% per month (or part of a month)
• Period: From 1 April of the AY until the date of filing the ITR (or assessment order, if later)
• Base: Assessed tax minus advance tax actually paid

Formula:

Interest u/s 234B = (Assessed Tax − Advance Tax Paid) × 1% × Number of months

Example: Assessed tax ₹2,00,000. Advance tax paid ₹1,60,000 (80% — below the 90% threshold). ITR filed on 31 July 2026.

• Shortfall = ₹2,00,000 − ₹1,60,000 = ₹40,000
• Period = 1 April 2026 to 31 July 2026 = 4 months
• 234B interest = ₹40,000 × 1% × 4 = ₹1,600

Section 234C — Shortfall in Individual Instalments

Interest applies if any individual instalment fell short — even if the total is eventually paid in full:

234C applies even if you pay 100% before filing the ITR — the interest for each missed quarterly instalment has already accrued based on the shortfall at that date.

Section 234A — Late Filing Interest

If the ITR is filed after the due date and tax is payable, Section 234A charges 1% per month on the unpaid tax from the due date until actual payment. This is distinct from the Section 234F late filing fee.

Self-Assessment Tax

Tax remaining unpaid after TDS and advance tax credits must be paid as self-assessment tax before filing the ITR.

Steps:

1. Compute total tax liability in the ITR
2. Deduct TDS credits (from Form 26AS/AIS) and advance tax paid
3. If balance tax remains, pay via challan ITNS 280 (type: self-assessment tax) before submitting the ITR
4. Enter the challan details (BSR code, challan number, date, amount) in the ITR

Self-assessment tax paid after the ITR due date is subject to Section 234B interest for the delay period.

Challan ITNS 280 — How to Pay

All direct tax payments (advance tax and self-assessment tax) use Challan ITNS 280:

• Online: incometax.gov.in → e-Pay Tax → Select ITNS 280
• Offline: At authorised bank branches with a physical challan

Key Fields in ITNS 280

After payment, a Challan counterfoil is generated containing:

• BSR Code (bank branch code)
• Challan serial number
• Amount paid
• Date of deposit

These three fields must be entered in the ITR to claim the payment as a credit.

TDS and Advance Tax for Salaried Employees

For a salaried employee whose full income is from salary with TDS correctly deducted:

• Employer deducts TDS monthly based on projected annual salary and Form 12BB declarations
• Total annual TDS approximately equals the total tax liability
• The TDS credit in Form 26AS represents tax already paid
• No separate advance tax instalments are required

Threshold still applies: If a salaried employee earns ₹25,000 in FD interest and the tax on this income exceeds ₹10,000, they must pay advance tax on that residual amount — the salary TDS does not cover non-salary income.

Case Study — Kiran Sharma's Advance Tax (FY 2025-26)

Complete Income Picture

In addition to his salary (where TDS is deducted by Sunrise Retail), Kiran earns business income from Kiran Electronics and dividends:

*Approximate TDS on salary — exact figure depends on regime declared in Form 12BB.

Step 1: Estimate Annual Tax (New Regime)

From Lesson 5, Kiran's GTI under the new regime = ₹9,75,000 and total tax (after Section 87A rebate) = ₹0.

Since Kiran's total estimated tax liability is ₹0, the residual tax after TDS is also ₹0. No advance tax obligation arises — the threshold of ₹10,000 is not met.

Sunrise Retail Pvt Ltd — Advance Tax Schedule (FY 2025-26)

Sunrise Retail's estimated corporate tax: ₹7,72,341 (from Lesson 4). No TDS deducted (the company pays tax directly — it is not an employee).

Sunrise Retail must deposit each instalment via Challan ITNS 280 (Tax Code 0020 — Companies) on or before each due date.

What If Sunrise Retail Misses the June Instalment?

If Sunrise Retail pays nothing by 15 June 2025 and pays ₹3,47,553 on 15 September 2025 (catching up to the 45% cumulative):

• September: Cumulative 45% met — no 234C for September.
• June shortfall: ₹1,15,851 short for 3 months.
• Section 234C interest = ₹1,15,851 × 1% × 3 = ₹3,476 approximately.

At higher income levels, the stakes rise significantly — a ₹2 crore tax liability with a missed June instalment generates ₹9,000 in 234C interest just from one missed quarter.

Refund Process

If total TDS and advance tax paid exceed the actual tax liability, the taxpayer is entitled to a refund.

How Refunds Are Processed

1. File the ITR — the refund claim is embedded in the return
2. The Centralised Processing Centre (CPC), Bengaluru, processes the return (automated)
3. An Intimation under Section 143(1) is issued — automated assessment confirming income, deductions, and tax
4. The refund is credited to the pre-validated bank account linked to PAN on the portal

Section 143(1) Intimation

This is NOT a scrutiny notice — it is a routine automated communication that:

• Confirms income and deductions as filed (or adjusts obvious arithmetic errors)
• Specifies the refund amount or demand
• Is typically issued within 60–90 days of filing

If the intimation shows a lower refund than expected, check for TDS mismatches with Form 26AS/AIS — the most common cause.

Refund Interest — Section 244A

If the refund is delayed beyond the normal processing period, the taxpayer earns 6% per annum on the refund amount. Interest starts from 1 April of the AY (or the date of filing, whichever is later).

Practice Exercises

Key Terms

Module Summary

• Advance tax is mandatory when residual tax (after TDS) exceeds ₹10,000; paid in four instalments: 15 June (15%), 15 September (45%), 15 December (75%), 15 March (100%).
• 44AD/44ADA taxpayers pay 100% in a single instalment by 15 March — no quarterly schedule.
• Section 234B penalises overall shortfall (1%/month from 1 April of AY); Section 234C penalises each missed instalment.
• TDS from the employer generally satisfies advance tax for purely salaried employees — advance tax is only needed if non-salary income creates residual tax >₹10,000.
• Kiran Sharma's advance tax obligation for FY 2025-26 under the new regime = ₹0 (total tax is nil due to Section 87A rebate).
• Sunrise Retail must pay ₹7,72,341 in four instalments across FY 2025-26.
• Refunds are processed via Section 143(1) intimation and credited to the pre-validated bank account; delayed refunds earn 6% interest under Section 244A.

Quick Quiz

Income Tax course complete. You have worked through all seven modules — from the basics of income tax and residency through five heads of income, salary deductions, business income computation, Chapter VI-A deductions, ITR form selection, and advance tax. Return to the Training home to explore other courses.