What are the incomes on which advance tax can be paid in the next quarter without penal interest

If an individual's estimated tax liability for the financial year after subtracting TDS exceeds Rs 10,000, then, according to income tax rules, advance tax will be payable. The Income-tax Act, 1961, defines the advance tax amount payable by an individual before the specified due dates. If the advance tax amount deposited to the government is lower than the prescribed amount, then penalty under Section 234C is levied.

The income tax laws have exempted certain incomes on which advance tax is not payable before the income becomes due/credited to one's bank account. For these specified incomes, penal interest under Section 234C would not be levied, provided advance tax is paid on the next due date after the income became due or is paid.

"An accurate estimation of tax liability on capital gains and other specified incomes is not possible in advance hence the relaxation on levying of penal interest is given," says Anand Bathiya, Vice President, Bombay Chartered Accountants' Society (BCAS).

Specified incomes where penal interest under section 234C is not applicable

These specified incomes which are mentioned below are not exempted from payment of advance tax. It is just that advance tax for these incomes can be paid after it has been paid to the individual or became due. This is opposite to what normally happens.

Here are the specified incomes where penal interest under Section 234C is not applicable:

• Any Capital gains income,
• Winning from lotteries, crossword puzzles, horse racing, card games, any gambling or betting game income, etc.,
• Income under the head profits and gains from business or profession if the income has accrued or arisen for the first time. For example: A doctor who just started his own clinic cannot possibly estimate how many patients he will get in the first year, so he cannot accurately estimate his annual revenue for the first year. However, from the second year onwards, the doctor cannot say that he cannot estimate his annual sales, since he already has one year past data to establish a rough sales figure estimate.
• Dividend income from a Indian company excluding deemed dividend.

The law has given a relaxation for not paying penal interest on the above-mentioned incomes because an accurate calculation of tax liability is not possible. However, this does not mean that the advance tax is not to be paid.

"The relaxation is not to encourage delay in deposit of Advance Tax. The key word is 'remaining advance tax instalments' which means that Section 234C interest would be applicable in those cases from the period when such income arose," says Deepashree Shetty, Associate Partner - Tax & Regulatory Services, BDO India, a business and tax consulting company.

Shetty explains with an example below:

For example, the advance tax on capital gains from any asset earned in November 2023 would need to be deposited by December 15, 2023, and March 15, 2023, instalments. However, if capital gain is earned on March 20, 2023, then 100% of the tax liability should be paid by March 31, 2023, to avoid Section 234C implications.

Income tax follows the financial year which starts from April and ends in March of the next financial year.

Here is an example: A salaried individual paid Rs 105 for purchasing a lottery ticket on June 14, 2023, i.e., Q1 2023 quarter (April-June) and won Rs 11,000 after the lottery results were declared on 30 July 2023 i.e. Q2 2023 (July-September). So, this individual needs to factor in this lottery income and estimate his new tax liability and then pay the advance tax in the specified instalments in Q3 (October-December) and Q4 (January-March). If the individual pays off the advance tax instalments in Q3 and Q4 after factoring the lottery income which occurred in Q2 2023 then section 234C penal interest would not be levied. If the individual failed to pay advance tax on the lottery income by the nearest quarterly advance tax schedule in the specified percentage, section 234C penal interest would be charged.

What is the due date to pay advance tax

According to the Income-tax Act, 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

When is section 234C penal interest for advance tax applicable?

According to section 234C, an individual must pay the accurate tax liability within the four specified advance tax schedules. Failure to do so will result in an imposition of penal interest of 1% per month of the amount of shortfall of tax.
"Any deferment (putting off) of advance tax instalments (i.e., non-payment within due dates or short payment of instalment) would attract penal interest implications under Section 234C," says Shetty.