Income Tax: Avoid Interest On Advance Tax Shortfall By Doing This Before March 31

March 2025 is winding down, and the last thing you need is a surprise tax bill with extra interest. If you earn beyond your salary, whether from fixed deposits, rental income or stock market gains, missing advance tax payments can be costly. While employers deduct TDS on salaries, they don’t account for additional income unless you notify them.

A declaration before March 31, 2025, can help you avoid penalties under Section 234C of the Income Tax Act.

As per tax regulations in India, if your total tax liability exceeds Rs 10,000 in a financial year, you are required to pay advance tax in instalments — 15% by June 15, 45% by Sept. 15, 75% by Dec. 15 and 90% by March 15. Falling short of these payments results in interest charges under Section 234C.

For most salaried employees, advance tax is not a concern as their employer deducts TDS from their monthly salary. Senior citizens without business income are also exempt.

However, if you earn additional income from fixed deposits, rental income, dividends or stock trading, your employer’s TDS may not be sufficient to cover your total tax liability. In such cases, it becomes your responsibility to pay advance tax to avoid interest penalties.

To ensure that your advance tax obligations are met, you can declare your additional income to your employer before March. Your employer will then deduct the necessary TDS on this income, helping you avoid interest under Section 234C.

Employers, under Section 192B of the Income Tax Act, 1961, are obligated to consider additional income if disclosed in time. To facilitate this, you must submit a declaration under Section 26B of the Income Tax Rules, 1962. While there is no standard format, a simple document listing your extra income and any TDS already deducted should suffice. Once submitted, your employer will adjust the March salary deduction accordingly.

While this strategy is useful, it comes with a few practical challenges. A large TDS deduction in March could impact your cash flow, making it important to plan. Also, this method works only if your March salary is sufficient to cover the additional tax liability. If the amount owed exceeds your take-home salary, you will still need to make an advance tax payment directly before March 31.

Overall, avoiding interest on advance tax shortfalls is simple — just declare any additional income to your employer before the financial year ends. This ensures that TDS deductions cover your total tax liability, sparing you from unnecessary penalties. If your employer cannot accommodate last-minute adjustments, make sure to pay your advance tax directly by March 31 to remain compliant and avoid extra charges.