What is Advance Tax?
Advance tax, also known as "pay-as-you-earn" tax, is a system of paying income tax in installments throughout the financial year instead of paying the entire amount at the time of filing the return. This ensures a steady flow of revenue to the government and reduces the burden of lump sum payment on taxpayers.
Why Advance Tax?
- ✓ Ensures regular government revenue
- ✓ Reduces year-end tax burden
- ✓ Promotes financial discipline
- ✓ Avoids interest penalties
- ✓ Better cash flow management
- ✓ Mandatory for businesses
Who Must Pay Advance Tax?
Must Pay Advance Tax
- ✓ Individuals with business/profession income
- ✓ Companies (Domestic & Foreign)
- ✓ LLPs and Partnership Firms
- ✓ Tax liability after TDS > ₹10,000
- ✓ Freelancers & consultants
- ✓ Property sellers (capital gains)
Exempt from Advance Tax
- ✗ Senior citizens (60+ years) with no business income
- ✗ Tax liability after TDS ≤ ₹10,000
- ✗ Salaried employees (TDS covers full liability)
- ✗ Those opting for presumptive taxation (44AD/44ADA)
Presumptive Taxation Exception
Taxpayers opting for presumptive taxation under Section 44AD (business) or 44ADA (profession) can pay entire advance tax by March 15 instead of quarterly installments.
Advance Tax Due Dates
| Due Date | Installment | Minimum Payable | Cumulative |
|---|---|---|---|
| On or before June 15 | 1st Installment | 15% | 15% |
| On or before September 15 | 2nd Installment | 30% | 45% |
| On or before December 15 | 3rd Installment | 30% | 75% |
| On or before March 15 | 4th Installment | 25% | 100% |
Important Note
If you miss earlier installments, you must pay the cumulative amount by the next due date. For example, if you miss June and September installments, you must pay 45% by December 15.
How to Calculate Advance Tax
Step-by-Step Calculation
- 1. Estimate your total income for the financial year from all sources (salary, business, capital gains, house property, other sources)
- 2. Subtract eligible deductions under Chapter VI-A (80C, 80D, 80G, etc.)
- 3. Calculate tax on estimated taxable income as per applicable slab rates
- 4. Add surcharge (if applicable) and Health & Education Cess @ 4%
- 5. Subtract TDS already deducted and TCS already collected
- 6. Balance amount is your advance tax liability
Illustration
| Estimated Business Income | ₹15,00,000 |
| Less: Deductions (80C, 80D) | - ₹2,00,000 |
| Taxable Income | ₹13,00,000 |
| Income Tax | ₹2,02,500 |
| Cess @ 4% | + ₹8,100 |
| Total Tax Liability | ₹2,10,600 |
| Less: TDS Deducted | - ₹50,000 |
| Advance Tax Payable | ₹1,60,600 |
How to Pay Advance Tax
Method 1: Online Payment (Recommended)
- 1. Visit incometax.gov.in
- 2. Go to e-Pay Tax section
- 3. Enter PAN and mobile number
- 4. Select "Advance Tax (100)" as tax type
- 5. Select assessment year
- 6. Enter tax amount and pay via net banking/UPI/card
- 7. Save Challan 280 receipt
Method 2: Physical Payment
- 1. Download Form Challan 280
- 2. Fill in PAN, name, assessment year
- 3. Select "Advance Tax" (Code 100)
- 4. Fill amount details
- 5. Submit at authorized bank branch
- 6. Collect stamped challan receipt
Important: Verify Challan
After payment, verify your challan on the TIN-NSDL website within 1 week. Ensure your PAN is correctly credited in Form 26AS.
Interest on Late Payment
Section 234B - Default in Payment
Applicable if advance tax paid is less than 90% of assessed tax.
- • Interest: 1% per month
- • Period: April 1 to date of assessment
- • On: Assessed tax minus advance tax paid
Section 234C - Deferment
Applicable if installments are not paid as per schedule.
- • Interest: 1% per month
- • Period: 3 months for each deferment
- • On: Shortfall from prescribed percentage
| Section | Trigger | Rate | Period |
|---|---|---|---|
| 234B | Advance tax < 90% of assessed tax | 1% per month | April 1 to assessment date |
| 234C | Installments not paid on time | 1% per month | 3 months per installment |