The Finance Ministry has issued a corrigendum to the Income-tax (No. 2) Bill, 2025, bringing clarity to the provisions for charging interest on shortfalls in advance tax payments. The update, issued on August 11, 2025, aligns Clause 425 of the Bill with the existing rules under the Income-tax Act, 1961.
As per the corrigendum, the "3 percent" interest mentioned in the provision refers to 1% per month for three months for each instalment shortfall, exactly as stipulated in the previous law. This means that if a taxpayer misses the quarterly advance tax deadline - even by a single day - interest will be charged for a minimum of three months on the shortfall.
For example:
-
If the first instalment (15% of annual liability) is due by June 15 but is paid on June 16, interest will still be levied at 1% per month for three months, not just for the delay period.
Tax experts say this amendment removes the ambiguity in the Bill.
Updated Advance Tax Structure
| Period | Cumulative Tax Due | Interest on Shortfall |
|---|---|---|
| By June 15 | 15% | 3% |
| By September 15 | 45% | 3% |
| By December 15 | 75% | 3% |
| By March 15 | 100% | 1% |
Interest is calculated on the shortfall amount after deducting any advance tax already paid before the due date.
Illustration: If a taxpayer's total annual advance tax liability is Rs 5 lakh:
- By June 15, they must pay Rs 75,000 (15%). If they pay only Rs 50,000, the Rs 25,000 shortfall attracts Rs 750 interest (Rs 25,000 × 1% × 3 months).
- By September 15, the cumulative amount should be Rs 2.25 lakh. If only Rs 1.70 lakh is paid, the Rs 55,000 shortfall attracts Rs 1,650 interest (Rs 55,000 × 1% × 3 months).
- Total interest payable for both instalments: Rs 2,400.
Advance tax applies to individuals, companies and entities with an annual tax liability of Rs 10,000 or more, payable in four instalments during the financial year. Senior citizens without business income are exempt.
The clarification is particularly relevant for taxpayers who underpay or miss deadlines, as interest costs can accumulate significantly over the year.
CAclubindia
