Advance Tax

The Indian Income Tax Act follows the “Pay As You Earn” principle, which means that taxpayers must pay taxes during the financial year in which income is earned, rather than waiting until the end of the year. This system is known as Advance Tax.

Advance Tax is the income tax that should be paid in installments throughout the financial year instead of a lump sum at the end of the year. It helps the government receive a continuous flow of revenue and reduces the last-minute burden on taxpayers.

Legal Provisions

Advance Tax is governed by Sections 207 to 219 of the Income-tax Act, 1961.

Who is Liable to Pay Advance Tax?

Advance tax is applicable to all taxpayers, including:

• Salaried individuals

• Freelancers

• Professionals

• Businesses

• Companies

Condition for Liability:

If the total tax liability (after TDS) is ₹10,000 or more in a financial year, the taxpayer is required to pay advance tax.

Exemptions from Advance Tax

• Senior citizens (60 years or older) who do not have income from business or profession are not liable to pay advance tax.

• Taxpayers with zero tax liability after TDS adjustments are not required to pay advance tax.

Due Dates and Installments for Advance Tax Payment:

For Non-Corporate Assessees (Individuals, HUFs, Firms):

• 100% of advance tax must be paid on or before 15th March in one installment only.

Calculation of Advance Tax:

To calculate advance tax, follow these steps:

1. Estimate total income during the financial year.

2. Compute total tax liability using applicable tax slab rates.

3. Deduct TDS/TCS already deducted.

4. If net tax payable ≥ ₹10,000, pay advance tax in prescribed installments.

Mode of Payment:

• Online through the Income Tax e-filing portal using Challan No./ITNS 280

• Offline at authorized bank branches using the same challan form

Interest on Non-Payment or Short Payment:

If advance tax is not paid, or is paid less than required, interest is levied under the following sections:

• Section 234B:

Interest at 1% per month if 90% of total tax liability is not paid as advance tax.

• Section 234C:

Interest at 1% per month for 3 months for shortfall or deferment in each installment.

Benefits of Paying Advance Tax:

• Avoids interest penalties under Sections 234B and 234C.

• Reduces financial burden at the end of the year.

• Helps in better tax planning and budgeting.

• Improves cash flow management for businesses.

• Enhances compliance record with the Income Tax Department.

Example of Advance Tax Calculation:

Let’s say an individual expects the following during the FY:

• Salary Income: ₹8,00,000

• Interest Income: ₹1,00,000

• Total Income: ₹9,00,000

• Tax liability (after standard deduction and rebate): ₹72,800

• TDS deducted by employer: ₹50,000

• Net tax payable: ₹22,800

Since ₹22,800 > ₹10,000, advance tax is applicable.

Installments would be:

• 15% by 15th June: ₹3,420

• 30% more (to make 45%) by 15th September: ₹6,840

• 30% more (to make 75%) by 15th December: ₹6,840

• 25% more (to make 100%) by 15th March: ₹5,700