Advance Tax Planning for Businesses: Avoiding the March Rush

Advance tax — the requirement to pay income tax in instalments during the financial year rather than as a lump sum at year-end — is one of the most mismanaged aspects of corporate tax compliance. The result is predictable: a scramble in March, cash flow stress, and interest charges that could easily have been avoided.

The Advance Tax Schedule

For companies, advance tax is payable in four instalments during the financial year.

• 15% of estimated tax liability by 15th June.
• 45% (cumulative) by 15th September.
• 75% (cumulative) by 15th December.
• 100% (cumulative) by 15th March.

Interest Implications of Under-payment

Under-payment of advance tax attracts interest under Sections 234B and 234C of the Income Tax Act. Section 234B applies when less than 90% of the assessed tax is paid as advance tax. Section 234C applies when instalments are short-paid relative to the prescribed percentages.

The interest rate is 1% per month — which adds up quickly on large tax liabilities.

A Proactive Approach

The solution is a mid-year tax review — typically in August or September — where the full-year profit is estimated based on actual performance to date, and the advance tax liability is computed accordingly. This allows the September instalment to be calibrated accurately, avoiding both under-payment (and interest) and over-payment (and cash flow cost).

We conduct advance tax reviews for our clients as part of our ongoing tax compliance service — so the March deadline is never a surprise.