Advanced Tax Payment by Salaried Employees

If you have paid attention to newspapers in last few days, there are lots of advertisements from Income Tax Department about paying your advance taxes before March 31, 2013.

Most Salaried individuals are not aware about advance tax and there is a misconception that Advance taxes needs to be paid by businessmen or self employed professionals. But salaried employees too need to pay advance tax under following conditions:

  1. If they have any income in addition to salaried income (including interest income from Fixed Deposits/ Saving Accounts, Capital Gains, etc) and
  2. The difference in actual tax liability on such income and TDS (Tax Deduction at Source) is more than Rs 10,000


Lets explain the concept of advance tax by an example.

Mr. Ram has annual salary of Rs 15 lakhs and he falls in highest tax bracket of 30%. He also has Rs 10 Lakhs in fixed deposit with a bank which pays him interest of 9% every year.

Salary Income = Rs 15 lakhs

For salary income, the employer deducts TDS and submits the same to the income tax department and hence Ram need not be worried about advance taxes on his salary income.

Interest income = Rs 10,00,000 x 9% = Rs 90,000

  1. As per rule the banks deducts TDS at 10.3%. So the bank would deduct Rs. 9,270 (Rs 90,000 x 10.3%) as TDS and deposit the same on behalf of Ram to income tax department.
  2. Since Ram’s income falls in highest tax bracket, his actual tax liability on interest received on Fixed Deposit comes out to be Rs. 27,810. So Ram is liable to pay Rs 18,540 (27,810 – 9,270) more as income tax.
  3. Since this income tax liability difference is more than Rs 10,000 Ram would need to deposit advance taxes.

Also Read: How you loose money in Fixed Deposits?

When is Advance Tax Payable?

For individuals, advance tax is payable in three installments in a financial year.

So for FY 2012-13 (AY 2013-14) the advance taxes needs to paid as follows:

  1. At least 30% of estimated tax difference by September 15, 2012
  2. At least 60% of estimated tax difference by December 15, 2012
  3. 100% of estimated tax difference by March 15, 2013

Here the Tax difference means the difference between the actual tax liability and the TDS.

So if we take above example, Mr. Ram had to pay

  1. At least Rs. 5,562 (30% of 18,540) as advance taxes by September 15, 2012
  2. At least Rs. 11,124 (60% of 18,540) as advance taxes by December 15, 2012 [This included previous installment of Rs 5,562]
  3. And Rs. 18,540 before March 15, 2013

The advance tax dates have been extended till March 31, 2013 so the last installment can be paid on or before this date.

How to pay Advance Tax?

Paying advance tax is simple. You need to go to income tax website and fill the relevant form and pay online through your bank account.

You can also do it offline by visiting the nearest bank branch which deals with income tax.

What if you don’t pay Advance Taxes?

As I mentioned earlier, the awareness about advance taxes in not high among salaried class and hence they might have skipped paying advance taxes. In case you have not paid advance taxes, a penal interest of 1% simple interest per month on outstanding tax is charged u/s 234C and 234B.

We take the above example and there are two situations:

Situation 1: Mr. Ram skipped the advance tax payment in September and December and paid on March 31, 2013.

The interest he needs to pay is:

  • 1st installment penal interest: Rs 5,562 x 3 months x 1% = Rs 167
  • 2nd installment penal interest: Rs 11,124 x 3 months x 1% = Rs 334
  • Total penal interest = Rs 501

So on March 31, 2013 has to pay Rs 18,540 along with additional Rs 501 as penal interest u/s 234C

Situation 2: Mr. Ram did not pay in FY 2012-13 and pay the tax during filing of Tax Return on July 31, 2013

  • In this case there would be additional penal interest from April to July 2013 u/s 234B. This interest comes to be Rs 18,540 x 4 months x 1% = Rs 742

He has to pay this Rs 742 (u/s 234B) along with the Rs 501 (u/s 234C) calculated above as the penal interest.

The easier way out?

In case you do not want to go with all the hassel of calculating taxes and paying advance taxes, the easiest way out is to declare income from other sources to your employer. They would accordingly calculate your tax liability, deduct TDS from your salary and deposit it with income tax department.

Exemption from paying Advance Taxes

  1. As stated above, if the difference between your actual tax liability and TDS is less than Rs 10,000 then you are not required to pay advance taxes.
  2. Since FY 2012-13 Senior citizens who have no income from business or profession are exempted from paying advance taxes. Accordingly, now the senior citizen could pay tax after the FY ends on March 31 as “self assessment tax” on taxable income before filing returns.

Situations salaried employees need to pay Advance Tax

Here are some situations where I think salaried employees need to take care about payment of advance taxes:

  1. If you have large amount of interest income from Fixed Deposits or saving bank Account or Bonds etc
  2. In case you have changed jobs in a financial year but have not declared the income from previous employer to your present employer. This would lead to lesser tax deduction and you will need to look into advance tax payment.
  3. In case you have made capital gains by selling property, gold, mutual funds, stocks, etc and liable to pay taxes on them.

I am sure you can come out many more such situations but remember to pay advance taxes if you have any other income.


Today is the last day of FY 2012-13. You must calculate your tax liability for this financial year and pay advance taxes if applicable. You can do it online or go to your bank branches today. The banks and income tax office both are open for business today.

Also its good time to start planning for next year which starts tomorrow. You can download the Income Tax calculator for FY 2013-14 and start planning your taxes accordingly.


You can download the following files for calculating your Income Tax liability and also to know How to save Tax!

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8 thoughts on “Advanced Tax Payment by Salaried Employees

  1. […] Also Read: How to Calculate and Pay Advance Tax […]

  2. Suresh @ Best Investments says:

    Good one Amit.

  3. How to pay advance tax in below scenarios?
    1. I sold some shares on 10th May of 40000/- and 60000/- on 25th September. So how much advance tax i should pay on 15th September and how much on 15th December.(tax liability is 30%)
    2. In second case I have auto sweep salary account, so by default amounts in my account are moving to auto Fixed deposit and when i withdraw(break the FD) i am getting the interest. So i think for that also i have to pay advance tax if taxable amount is more than 10000/- from Fixed deposit. but i cannot estimate total interest value from Fixed deposit for whole year. so how to pay advance tax on 15th September and 15th December.

    • Here are the answers:
      1. In case the sale of share if there is long term capital gain, no tax is payable. In case there is short term capital gain, for sale of shares in May, you need to pay 30% of tax liability arising out it by Sep 15th. Further for sale of shares in Sep, you would need to pay 60% of tax liability of both the transactions (Sep + May) by Dec 15th and 100% tax liability of both transactions by Mar 15th.

      2. In case the amount of interest paid on Sweep in Account or FD is more than Rs 10,000, bank would deduct TDS on the same and deposit it as advance tax. If you are not able to calculate the amount of interest yourself, you can ask for interest certificate for paying advance tax.
      For sweep in account, you need to pay advance tax on 15th Sep on the interest earned till Sep 15. As you don’t know how much money would be put in sweep in account after this date, you cannot calculate your taxes. So the solution is to get interest certificate before each advance tax filing date from bank, calculate your tax liability accordingly and pay it.

      • Thanks Amit,
        It helped me but when I asked to bank people they said they can’t give interest certificate on 15th Sep and 15th Dec and 15th March. but I can get the interest accumulated into my account till 15th Sep, 15th Dec and 15th Mar. So as per your comments I should pay the tax as per received interest and not for projected because that might be not there till the end or we don’t know how much more money will be done in Auto sweep.

        Thank you very much for your response

      • Thanks Amit,
        I assumed same but due to many blogs of fixed deposit and advance tax I got confused. it is clear now.

  4. How did we arrive at 27,810 as the tax liability on FD interest as per the high tax bracket?

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