Advance tax for RSU holders India: Section 234C installments (AY 2026-27)

Employer TDS handles the salary part of your tax. It does not handle RSU capital gains.

When you sell vested RSU shares and book a gain, no one withholds tax at source. The responsibility falls on you — through the advance tax system — to pay tax on that gain during the financial year, in quarterly installments.

Miss a date or underpay a tranche and Section 234C charges interest. It's not dramatic, but it's avoidable.

The four installment schedule (FY 2025-26 / AY 2026-27)

Section 234C interest is computed on the shortfall at each installment date, not on the cumulative liability. Each installment is tested independently.

Why RSU holders get caught by advance tax

Scenario: You are salaried at ₹18 lakh gross. Your employer deducts TDS on the salary. You vest ₹4 lakh worth of RSU shares in August and sell them in November for ₹5.5 lakh, booking ₹1.5 lakh in short-term capital gains (held < 24 months for US-listed stock).

At 30% slab + surcharge + cess, the tax on ₹1.5 lakh STCG is roughly ₹45,000. Your employer's TDS covers none of this — TDS is computed on salary income only. So ₹45,000 is your advance tax liability.

The advance tax computation:

• 15 June: 15% of ₹45,000 = ₹6,750 (but the vest happened in August — this installment predates the gain)
• 15 September: 45% cumulative = ₹20,250 (gain realised in November — still before this installment?)
• 15 December: 75% cumulative = ₹33,750 (sell happened in November — this is the first date after the gain)
• 15 March: 100% = ₹45,000

This is where the capital-gains-in-last-quarter exception matters.

The last-quarter exception

If capital gains arise after December 15 (i.e., in the January–March quarter), you can pay 100% of the tax on those gains by March 15 with no Section 234C interest on those gains — even though the earlier installments showed a shortfall.

But if the gains arose before December 15 (as in most sell-to-cover situations in Q1–Q3 of the financial year), the exception doesn't apply and you're tested against each installment's cumulative threshold.

Practical result: An RSU holder who sold shares in August, September, or October and paid nothing until March will owe 234C interest on the shortfall at the September 15 and December 15 installments.

How to compute your advance tax

Step 1: Estimate total income for the year

Sum up:

• Salary income from Form 16 estimate (or last year's gross as a proxy)
• RSU perquisite value at each vest (FMV × shares, converted at SBI TTBR)
• RSU capital gains from sales made or expected this year (proceeds − cost basis, both in INR)
• Other income: FD interest, dividends, rental income

Step 2: Estimate total tax

Apply slab rates (old or new regime, whichever you'll use), add surcharge and 4% cess, subtract TDS already deducted by employer and any advance TDS deducted from FD interest.

Step 3: Check the ₹10,000 threshold

If estimated net liability (after TDS) exceeds ₹10,000, advance tax is mandatory.

Step 4: Pay each installment via Challan 280

Pay online at the ITD portal → e-Pay Tax → Self-Assessment / Advance Tax → select Advance Tax (code 100).

Use:

• Assessment Year: 2026-27
• Type: Advance Tax

Keep the BSR code and challan serial number — you'll need them when filing ITR-2.

Section 234C interest computation

For each installment, the interest formula is:

234C interest = Shortfall × 1% × months

Where:

• Shortfall = Required cumulative payment − Amount actually paid by due date
• Months = 3 for June, September, and December installments; 1 for March

Example:

Advance tax liability: ₹60,000

Total 234C interest: ₹1,080

If this same person had paid all three earlier installments on time, 234C interest = ₹0.

The salaried-employee partial exemption

For individuals whose income consists entirely of salary (no capital gains, no business income, no other non-TDS income), the June, September, and December advance tax installments are optional — you can pay 100% by March 15.

But this exemption disappears the moment you have capital gains or other non-TDS income above ₹10,000. Most RSU holders who sell shares at any point during the year are squarely outside this exemption.

When employer TDS partially covers RSU gains

Some employers compute TDS on the full salary including the RSU perquisite value at vest. In this case:

• The perquisite tax is covered by TDS
• Only the capital gains from subsequent share sales remain uncovered
• Advance tax is required only on the capital gains portion (if > ₹10,000 net of employer TDS credit)

Check your Form 26AS mid-year to see what TDS has already been deposited. If the TDS balance leaves a gap of more than ₹10,000, pay the advance tax installment before the next due date.

What happens if you miss advance tax entirely

If you skip advance tax and pay everything at filing time as self-assessment tax:

• Section 234B applies: 1% per month from April 1 of the assessment year to the date of payment on 90% of the shortfall in assessed tax
• Section 234C applies: interest on each installment shortfall as computed above
• Both run concurrently and are in addition to the self-assessment tax itself

For a ₹1 lakh advance tax liability paid in August (after the July 31 filing deadline instead of during the year), the combined 234B + 234C interest typically works out to ₹5,000–₹12,000 depending on the installment shortfalls. Not catastrophic, but not free.

Practical approach for RSU holders

After each significant RSU sale during the year:

1. Estimate the capital gain (proceeds − cost basis in INR)
2. Compute the approximate tax (at your marginal rate)
3. Check what the cumulative advance tax installment threshold is for the next due date
4. Pay via Challan 280 before that date if you'll cross the threshold

For most salaried RSU holders, the practical approach is to pay advance tax twice a year: once around the December 15 installment (covering gains from H1 of the financial year) and once at March 15 (covering the full year). This minimises the 234C interest to the earlier-installment shortfalls only.

Use the late ITR filing interest calculator to estimate your Section 234A and 234B exposure if you're also filing late.

RSU advance tax: separating perquisite (TDS-covered) from capital gains (self-pay)

Most RSU holders conflate two distinct tax events with different collection mechanisms.

Event 1 — RSU vest (perquisite income): When shares vest, the FMV at vest is a perquisite under Section 17(2) — it is salary income. Your employer's TDS mechanism (Form 24Q) covers this. The employer computes TDS on your total estimated salary including the perquisite and deducts from subsequent cash salary or through sell-to-cover. You do not pay advance tax on the perquisite portion — it is already TDS-covered.

Event 2 — Capital gains from selling vested shares: When you sell RSU shares that have already been through the perquisite event, the gain (sale proceeds minus cost basis, which is the vest-date FMV) is capital gain. No one withholds tax on this. This is where advance tax liability arises for RSU holders.

Practical implication: if you have Rs 5 lakh perquisite income from a June vest and your employer correctly TDS-deducted Rs 1.55 lakh (at 31% effective rate), you have zero advance tax obligation on that Rs 5 lakh. Your advance tax obligation is only on the capital gain you book when you sell.

Worked example: June vest, August sale, September 15 deadline

Setup:

• June vest: 100 shares at $120. SBI TTBR: Rs 83.50. Perquisite: Rs 10,02,000. Employer TDS: ~Rs 3.1 lakh. Net shares deposited after sell-to-cover: ~75 shares.
• August sale: 50 shares at $135. SBI TTBR: Rs 84.00. Sale proceeds: 50 x $135 x Rs 84 = Rs 5,67,000. Cost basis: 50 x $120 x Rs 83.50 = Rs 5,01,000. STCG: Rs 66,000.

Tax on Rs 66,000 STCG at slab (30% bracket + 4% cess): Rs 66,000 x 30% = Rs 19,800; x 1.04 cess = Rs 20,592

This exceeds Rs 10,000 — advance tax is mandatory.

Advance tax by September 15: 45% cumulative of Rs 20,592 = Rs 9,266. Pay Rs 9,266 via Challan 280 (Advance Tax, code 100) by September 15, 2025.

Section 234C interest if you pay nothing by September 15:

• Shortfall: Rs 9,266
• Interest: Rs 9,266 x 1% x 3 months = Rs 278

On a larger gain — say Rs 5 lakh STCG with Rs 1.56 lakh tax — the September 15 advance tax required would be ~Rs 70,200, and the 234C interest on missing it would be Rs 2,106.

When a mid-year vest pushes TDS off track

An employer computes TDS at the start of the financial year based on a projected salary. A large unexpected vest in September or December pushes actual income well above the projection. The employer adjusts TDS in remaining months, but may not cover the gap if few months remain (or if the employee has resigned).

How to detect mid-year gaps: Check Form 26AS in December to see cumulative TDS deposited. If it is less than 75% of your estimated annual liability, pay the shortfall as advance tax by December 15 to stay within the 234C threshold for that installment.

Section 234C vs Section 234B: the difference

These two interest sections run concurrently.

Section 234C charges 1% per month on each installment shortfall during the financial year (3 months for June/September/December; 1 month for March). Tests each installment independently.

Section 234B charges 1% per month from April 1 of the assessment year to the date of self-assessment tax payment, on the amount by which advance tax paid falls short of 90% of assessed tax. Tests the full year after it ends.

If you paid zero advance tax during FY 2025-26 and pay everything on August 1, 2026:

• 234C: interest on shortfalls at each installment date
• 234B: 1% per month x 4 months on the 90% shortfall. On Rs 1 lakh liability: Rs 90,000 x 4% = Rs 3,600

Combined 234B + 234C on a Rs 1 lakh RSU capital gains tax liability paid entirely at August filing: approximately Rs 4,500-5,500.

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