The Income Tax Act, 1961, as an individual, you have to pay advance tax if the total tax payable in the relevant financial year exceeds Rs 5,000. Apart from the regular sources of income, like salary, business/profession and other sources like interest, advance tax is also payable on non-regular income like capital gains.Advance tax has to be paid before the relevant financial year comes to an end. So, for the year 1 April 2001 to 31 March 2002, any amount that is paid before 31 March 2002 is deemed advance tax. Under section 234C, the payments have to be made in three tranches to avoid interest penalties. So, you will have to pay up to 30 per cent of the advance tax on or before September 15; up to 60 per cent on or before December 15; and 100 per cent of the advance tax on or before March 15.

If there is a shortfall in any tranche, it can be made good in the next instalment, but you will have to pay 1.25 per cent interest per month on the outstandings. So, if you don’t pay any advance tax by September 15, but make good the payment on December 15, interest will be payable at 1.25 per cent for a three-month period from September 15 till December 15 . Likewise, although advance tax is payable till March 31, you will have to pay interest at 1.25 per cent a month if you miss the March 15 deadline.

Section 234B comes into play if you fail to pay at least 90 per cent of the advance tax by March 31. You will then have to pay 1.25 per cent interest per month on the outstandings from April 1 till such time as you clear your dues. Interest payments can be made any time after April 1 and you can attach proof of the payment along with your returns of income.

Tax payers whose total income is likely to be chargeable to tax for the assessment year are required to pay tax in advance during the financial year on their estimated current income, which will be assessable to tax during the next following financial year called assessment year. The current income for this purpose means the total income which will be chargeable to tax in the relevant assessment year.The advance tax payable is the tax on the current income minus the tax deductible at source or collectible out of any income included in the current income.If the tax payer does not make payment of advance tax voluntarily, the assessing officer can issue a notice at any time during the financial year, but not later than the last day of February asking him to pay the advance tax in specified instalments. Such notice is ordinarily based on the assessed income of the tax payer for the latest year. The assessee in that case has an option to pay advance tax on the basis of his own estimate if he considers that his current income during the relevant accounting period would be less than the income on the basis of which advance tax has been demanded from him. The assessing officer can modify his notice of demand in certain circumstances. Similarly, the assessee can also revise his estimate any number of times and after adjusting the amount already paid, if any, pay the balance in instalments falling due after the revised estimate.