Advance tax is income tax paid in installments throughout the financial year based on your estimated income. It is also referred to as the “Pay as You Earn Scheme.” Instead of paying tax in a lump sum at the end of the year, you pay it as you earn. This helps avoid a financial burden in one go.
The concept ensures that taxes are paid regularly, and the government has a continuous flow of income. It also makes it easier for taxpayers by breaking the payment into smaller, manageable amounts. If you’re looking for professional guidance, a Chartered Accountant in Delhi can help you navigate the process smoothly.
You are required to pay advance tax if your estimated tax liability for the financial year exceeds ₹10,000. This applies to a wide range of individuals and businesses:
Salaried individuals: Even if your salary is your primary income, you must pay advance tax if you have income from other sources like investments or rental income.
Freelancers and professionals: Independent workers such as doctors, lawyers, and consultants must pay advance tax if their income exceeds the threshold.
Business owners: Both individuals and companies that are making profits must estimate their taxes and pay them in installments.
Exemption for Senior Citizens: Senior citizens, aged 60 years or older, are exempt from paying advance tax if they do not have any income from business or profession. However, if they have other income sources, they must pay advance tax.
For more on who is exempt from advance tax, visit Income Tax Rules for Senior Citizens.
Advance tax can be paid in two ways: online and offline.
The online payment option is the most convenient. Here’s how you can make the payment:
Visit the Income Tax e-Filing Portal.
Go to the e-Pay Tax section under ‘Quick Links’ or search for it in the search bar.
Enter your PAN and OTP to verify your details.
Select the Assessment Year and choose Advance Tax (100) under the “Type of Payment.”
Fill in your tax details and choose your preferred payment method (debit card, net banking, etc.).
Complete the payment and save the challan receipt for reference.
You can also make payments at authorized banks. However, this method is only available for individuals or entities who are not required to get their accounts audited under Section 44AB.
Visit a bank that accepts tax payments and submit Challan No. ITNS 280 along with your payment details. Make sure you receive a receipt for your payment.
For detailed instructions on online payments, check the e-filing guide.
Advance tax is paid in four installments throughout the year. The due dates for each installment are as follows:
| Installment | Due Date | Advance Tax to be Paid |
|---|---|---|
|
1st Installment |
On or before June 15 |
15% of total tax liability |
|
2nd Installment |
On or before September 15 |
45% of total tax liability, minus previous payment |
|
3rd Installment |
On or before December 15 |
75% of total tax liability, minus previous payments |
|
4th Installment |
On or before March 15 |
100% of total tax liability, minus previous payments. |
Presumptive Taxation Scheme: Taxpayers under the presumptive taxation scheme (sections 44AD and 44ADA) must pay 100% of their advance tax by March 15.
Note: Tax paid before March 31 will be considered as advance tax for the financial year. More details on due dates are available on the official Income Tax Website.
Failure to pay advance tax or delay in payment can lead to penalties and interest under two sections:
Interest under Section 234B:
If you don’t pay at least 90% of your total tax liability by March 31, you will face an interest charge of 1% per month on the unpaid amount.
Interest under Section 234C:
If you don’t pay the advance tax by the due dates, interest will be charged at 1% per month for each overdue installment:
It’s essential to make timely payments to avoid additional charges. To understand the penalties and interest charges better, refer to this detailed explanation on penalties.
To calculate your advance tax, follow these simple steps:
Estimate your income for the financial year from all sources, including salary, rental income, capital gains, and others.
Apply the applicable deductions under sections like 80C (PPF, LIC), 80D (medical insurance), etc.
Calculate the tax based on the current income tax slabs.
Subtract any TDS/TCS that has already been deducted or collected.
If your total tax liability exceeds ₹10,000, you are required to pay advance tax.
Consider the case of Ajay, a freelancer in the interior decoration business.
Income from Profession: ₹8,00,000 (after expenses)
Income from Fixed Deposits: ₹10,000
Deductions:
Section 80C: ₹65,000 (PPF, LIC premiums)
Section 80D: ₹12,000 (medical insurance)
Total Income: ₹7,33,000
Tax Calculation:
Tax on ₹7,33,000: ₹59,100
Education Cess (4%): ₹2,364
Total Tax Payable: ₹61,464
TDS: ₹30,000
Advance Tax Payment: ₹31,464
Ajay’s tax payment schedule would be as follows:
June 15: ₹4,700 (15% of ₹31,464)
September 15: ₹9,400 (45% of ₹31,464 – ₹4,700)
December 15: ₹9,400 (75% of ₹31,464 – ₹14,100)
March 15: ₹7,900 (100% of ₹31,464 – ₹23,500)
This example demonstrates how you can break down your tax liability into manageable installments.
After paying your advance tax, if you have paid more than required, you will receive a refund. However, if there is a shortfall, you will need to pay the balance. The final tax payable or refundable is determined after adjusting for advance tax payments and TDS/TCS.
To track your refund status, visit the Income Tax Refund Tracker. Many times these tracking can be difficult make sure to get an expert financial advisor for this to prevent penalties
At AMM Associate, we offer expert assistance in calculating your advance tax and ensuring timely payments. Whether you’re an individual, freelancer, or a business, our team is here to guide you every step of the way.
Our specialized tax professionals can assist with all your needs. Whether you’re looking for accounting services in Delhi, or searching for a tax accountant near me, we offer personalized tax planning services.
A Chartered Accountant in Delhi from AMM Associate will help you:
Contact us today for personalized assistance with your advance tax payments and other accounting services.