Advance Tax Payment is a system that allows taxpayers to pay a portion of their tax liability before the end of the financial year. Often referred to as a tax EMI, this method ensures that the tax burden is spread out over time, preventing a large lump sum payment at the end of the year. To maximize the benefits of this system, it’s crucial to understand all its aspects, including advance tax payment dates, the amount payable, eligibility criteria, and the application process for the financial year.
Advance Tax refers to the concept of paying your income tax in advance rather than at the end of the fiscal year. This “pay-as-you-earn” system requires taxpayers to pay their tax liability in installments throughout the year if their total tax due exceeds Rs.10,000 in a given fiscal year.
This system is beneficial to the government as it ensures a steady flow of income, aiding in better financial planning. Additionally, if a taxpayer’s income estimate changes during the year, the advance tax amount can be adjusted accordingly.
Generally, the payment schedule is as follows:
It’s important to note that the advance tax payable varies across different categories of taxpayers. For instance, Non-Resident Indians (NRIs) earning more than Rs.10,000 in India are also required to pay advance tax.
You may also want to know Section 80CCD (1) and 80CCD (2)
The advance tax payment dates and the amount payable differ based on the category of the taxpayer.
Here’s a breakdown:
| Installment | Due Date of Tax Instalment | Amount of Tax Payable |
| 1st Instalment | Either on or before the 15th of September | At least 30% of the advance tax liability |
| 2nd Instalment | Either on or before the 15th of December | At least 60% of the advance tax liability |
| 3rd Instalment | Either on or before the 15th of March | 100% of the advance tax liability |
| Installment | Due Date of Tax Instalment | Amount of Tax Payable |
| 1st Instalment | Either on or before the 15th of June | At least 15% of the advance tax liability |
| 2nd Instalment | Either on or before the 15th of September | At least 45% of the advance tax liability |
| 3rd Instalment | Either on or before the 15th of December | At least 75% of the advance tax liability |
| 4th Instalment | Either on or before the 15th of March | 100% of tax liability. |
Example:
Suppose Mr. Jay estimates his taxable income for the current year to be Rs.10,00,000. Without considering any deductions, his tax liability would be Rs.112,500. His advance tax payments would be structured as follows:
Any taxpayer whose total tax liability exceeds Rs.10,000 after adjusting for TDS in a fiscal year must pay advance tax. This applies to all categories of taxpayers, including freelancers, professionals, salaried individuals, and senior citizens.
Advance tax is applicable to the following taxpayers:
Although employers deduct TDS from salary, if an individual has income from other sources like rent, business, or investments, and the total tax liability exceeds Rs.10,000, advance tax needs to be paid.
Since no TDS is deducted from income, freelancers and self-employed individuals must calculate their income and pay advance tax if their liability crosses Rs.10,000.
Businesses, including corporations, must pay advance tax based on their estimated annual income. Both small and large businesses fall under this category.
Senior citizens (aged 60 years and above) who do not have any income from business or profession are exempted from paying advance tax.
Delays in advance tax payments or paying less than the specified amount can attract a penalty of 1% interest on the remaining tax liability each month. This penalty is levied under Sections 234B and 234C of the Income Tax Act, 1961. The penalty applies if taxpayers miss the first due date and continue to default on subsequent payments.
Failure to pay advance tax on time can attract interest under sections 234B and 234C of the Income Tax Act.
If a taxpayer fails to pay at least 90% of their total tax liability by the end of the financial year, interest is levied at 1% per month on the unpaid tax.
If the advance tax installments are not paid on or before the specified due dates (15th June, 15th September, 15th December, and 15th March), interest is levied at 1% per month on the shortfall amount. These penalties aim to encourage taxpayers to make timely tax payments, ensuring compliance and steady tax collection.
Taxpayers can calculate their advance tax liability using the following steps:
Calculate your estimated income for the fiscal year, including revenue from sources like capital gains, interest, rent, and professional income.
Add your salary income to the estimated revenue for the year to determine the gross taxable income. Note that advance tax is not paid on salary alone.
Determine the tax payable based on the latest income tax slab applicable to your income.
Deduct the TDS amount from your tax liability. If your tax liability after TDS exceeds Rs.10,000, you need to pay advance tax.
If your income estimate changes during the year, adjust your advance tax payments accordingly to avoid penalties.
You may also want to know Section 44ADA of Income Tax Act
Here’s a step-by-step guide to paying advance tax online:
1. Visit the e-Filing Portal: Go to the Income Tax Department’s e-filing portal.
2. Select ‘e-Pay Tax’: Under ‘Quick Links’, click on ‘e-Pay Tax‘.
3. Enter PAN and Mobile Number: Fill in your PAN and mobile number, then click ‘Continue’.
4. Enter OTP: Input the OTP received and click ‘Proceed’.
5. Choose Income Tax Option: Select ‘Income Tax’ and click ‘Continue’.
6. Select Assessment Year and Payment Type: Choose the appropriate assessment year and select ‘Advance Tax (100)’ as the payment type.
7. Enter Tax Details: Fill in the tax details and choose your preferred payment method and bank.
8. Preview and Pay: Preview the challan and click ‘Pay Now’.
9. Receipt: After payment, an acknowledgment with the BSR code and challan serial number will appear. Keep a copy of this receipt for future reference.
For those who prefer not to pay online, advance tax can also be paid offline by submitting the challan at authorized bank branches of the Income Tax Department.
If the Income Tax Department finds that you have paid more tax than required, they will refund the excess amount at the end of the year. Taxpayers can claim a refund by submitting Form 30 within one year from the end of the assessment year.
Understanding and adhering to the advance tax payment system can save taxpayers from hefty penalties and interest charges. By spreading out the tax liability throughout the year, it also eases the financial burden on individuals and businesses. Whether you’re a salaried employee, freelancer, or business owner, paying advance tax on time is crucial to ensure compliance with tax regulations.
If you miss the deadline, a penalty of 1% interest on the outstanding amount will be charged for each month of delay under Sections 234B and 234C of the Income Tax Act.
Senior citizens aged 60 or above who do not own a business are exempt from paying advance tax.
Yes, you can pay advance tax offline by submitting the challan at authorized bank branches of the Income Tax Department.
You can calculate your advance tax by estimating your income, computing gross taxable income, determining the tax liability as per the applicable tax slab, subtracting TDS, and paying the balance if it exceeds Rs.10,000.
Yes, if you have overpaid, the Income Tax Department will refund the excess amount. You can claim a refund by submitting Form 30 within one year of the end of the assessment year.
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