Advance Tax is a system that requires taxpayers to pay income tax in installments throughout the financial year rather than at the end. This method, also known as “pay-as-you-earn” tax, ensures that the government receives tax revenue regularly and helps taxpayers avoid a financial burden at year-end.
What is Advance Tax?
Advance Tax is income tax paid in advance if the total tax liability exceeds ₹10,000 in a financial year. Instead of paying a lump sum at the end of the year, taxpayers must pay it in installments as per the Income Tax Department’s schedule.
This system applies to all taxpayers except salaried individuals whose tax liability is entirely covered by Tax Deducted at Source (TDS).
Who Needs to Pay Advance Tax?
The following taxpayers must pay Advance Tax if their tax liability is above ₹10,000:
1. Self-Employed Individuals & Freelancers
- Professionals such as doctors, lawyers, and consultants who earn income without TDS deductions.
2. Businesses
- Any business with tax liability exceeding ₹10,000.
- Those opting for the presumptive taxation scheme (Section 44AD & 44ADA) need to pay the entire Advance Tax by 15th March.
3. Companies and Corporates
- All companies must estimate their profits and pay tax accordingly.
4. Salaried Individuals with Additional Income
- Individuals earning rental income, interest, or capital gains must pay Advance Tax if their tax liability exceeds ₹10,000 after TDS deductions.
How to Calculate Advance Tax?
- Estimate Total Income from salary, business profits, capital gains, rental income, etc.
- Subtract Eligible Deductions under Section 80C, 80D, and other applicable sections as per the applicable tax regime opted.
- Compute Taxable Income after deductions.
- Apply Income Tax Slabs to determine tax liability.
- Subtract TDS (if applicable).
- If the final tax liability is more than ₹10,000, you must pay Advance Tax.
Advance Tax Due Dates & Installments
Advance Tax must be paid in installments as per the schedule below:
| Installment | Due Date | Tax Payable |
| 1st Installment | 15th June | 15% of total tax |
| 2nd Installment | 15th September | 45% of total tax (including the first installment) |
| 3rd Installment | 15th December | 75% of total tax (including the first two installments) |
| 4th Installment | 15th March | 100% of total tax liability |
For taxpayers under the presumptive taxation scheme, the entire tax (100%) must be paid by 15th March.
How to Pay Advance Tax?
Advance Tax payments can be made online through the Income Tax e-filing portal. Follow these steps:
- Visit https://www.incometax.gov.in.
- Click “e-Pay Tax”.
- Select “Challan 280” for Advance Tax.
- Enter PAN, assessment year, and tax amount.
- Make payment via net banking, debit card, or UPI.
- Download the receipt for reference.
What Happens If You Don’t Pay Advance Tax?
Failing to pay Advance Tax or paying less than required can result in interest penalties under Sections 234B and 234C:
1. Section 234B: Interest for Non-Payment
- If less than 90% of the total tax is paid by 31st March, interest at 1% per month is charged on the shortfall.
2. Section 234C: Interest for Late Payment
- If installments are not paid on time, interest at 1% per month is charged on the shortfall amount.
For example, if the total tax liability is ₹1,00,000 and the taxpayer fails to pay ₹15,000 by 15th June, interest at 1% per month will be charged on ₹15,000 until paid.
Refund of Excess Advance Tax
If a taxpayer pays more than the required Advance Tax, they can claim a refund while filing their Income Tax Return (ITR). The refund is processed by the Income Tax Department and credited directly to the taxpayer’s bank account.
To check the refund status, visit the Income Tax e-filing portal.
Key Takeaways
- Advance Tax applies when tax liability exceeds ₹10,000.
- Due dates: 15th June, 15th September, 15th December, and 15th March.
- Self-employed individuals, freelancers, businesses, and corporates must pay Advance Tax.
- Failure to pay results in interest penalties under Sections 234B and 234C.
- Taxpayers under presumptive taxation must pay the entire amount by 15th March.
- Payments can be made online via the Income Tax e-filing portal.
Conclusion
Advance Tax helps in tax compliance and prevents a financial burden at year-end. Paying it on time ensures penalty avoidance and smooth financial planning. Taxpayers must estimate their tax liabilities accurately and make timely payments to remain compliant.