Understanding Advance Tax
Advance tax refers to the system of paying income tax in installments during the financial year instead of settling the entire tax liability at the end of the year. It is calculated based on the taxpayer’s projected income for the year. Any individual, business, or entity with a tax liability exceeding ₹10,000 in a financial year is required to pay advance tax.
This system follows the “pay-as-you-earn” principle, where tax is paid in four installments based on the estimated annual income. Under the Indian Income Tax Act, it primarily applies to income sources such as:
- Business or professional earnings
- Rental income from property
- Capital gains
- Other income streams like interest on fixed deposits or lottery winnings
Who is Required to Pay Advance Tax?
The obligation to pay advance tax applies to:
- General Taxpayers
- Salaried Individuals:Taxes are usually deducted at source (TDS), but if additional income (e.g., rent, capital gains) increases the total tax liability beyond ₹10,000, advance tax must be paid.
- Businesses & Freelancers:Those earning from business or freelance work must pay advance tax if their annual tax liability exceeds ₹10,000.
- Senior Citizens:Individuals aged 60 years or above who do not earn income from business or profession are exempt from advance tax.
- Presumptive Taxation Scheme:Taxpayers opting for presumptive taxation under Sections 44AD or 44ADA are required to pay the entire advance tax amount in one installment on or before 15 March or 31 March of the financial year.
Advance Tax Due Dates for FY 2025–26
The advance tax for FY 2025–26 must be paid as follows:
- By 15 June 2025:15% of total tax liability
- By 15 September 2025:45% of total tax liability (after subtracting earlier payments)
- By 15 December 2025:75% of total tax liability (after adjusting previous installments)
- By 15 March 2026:100% of total tax liability (after earlier adjustments)
For taxpayers under presumptive taxation, the entire tax must be paid in a single installment by 15 March 2026.
Steps to Calculate Advance Tax
- Estimate Total Income:Include all earnings — capital gains, rent, professional income, salary, or interest.
- Apply Deductions:Claim deductions under Sections 80C, 80D, etc., to reduce taxable income.
- Calculate Tax:Use the applicable tax slab rates to find total tax liability.
- Adjust TDS:Subtract any TDS already paid or likely to be deducted.
If the resulting tax liability is over ₹10,000, advance tax payment becomes mandatory.
How to Pay Advance Tax Online
- Visit the Income Tax Department’s e-filing portal.
- Click ‘e-Pay Tax’under the Quick Links section.
- Enter and confirm your PAN, then provide your mobile number.
- Enter the OTP sent to your phone.
- Choose ‘Income Tax’and the correct assessment year.
- Select ‘100 –Advance Tax’ as the payment type.
- Enter the tax amount and payment method.
- Verify details and click ‘Pay Now’.
- Save the payment receipt for your records.
Interest for Delay in Advance Tax
- Section 234B:If at least 90% of the total tax is not paid by 31 March, 1% interest per month is charged on the unpaid amount.
- Section 234C:1% interest per month is applied for late or short payment of the required quarterly installments.
Tax Payable or Refundable
At year-end, after adjusting TDS and advance tax payments, the taxpayer may owe additional tax or receive a refund. Paying advance tax helps spread the tax burden and avoids last-minute large payments.
Advantages of Advance Tax
- For Government:Provides a steady flow of revenue during the year.
- For Taxpayers:Minimizes financial stress and prevents penalties or interest due to delayed payments.
Checking Payment Status
- Use the CIN-based viewon the TIN NSDL website to verify payment.
- Alternatively, log into your e-filing accountand check Form 26AS.
For Irregular Income
In cases like capital gains or lottery winnings, advance tax should be paid in remaining installments or by 31 March to avoid interest under Section 234C.
Minimum Payment by Year-End
To avoid interest, at least 90% of total tax liability must be cleared by 31 March. Any unpaid amount attracts 1% interest per month.
Cheque Payment Instructions
- Use separate challans for each payment category.
- Ensure correct PAN details.
- Confirm that the bank acknowledgment includes the BSR code, date, and challan number.
Downloading Advance Tax Challan
- Visit TIN NSDLand use the CIN-based option.
- Download or print the challan for reference.
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Disclaimer: Aim of this article is to give basic knowledge about the topic to people who are not in touch with Indian tax norms. When anybody is dealing with these kinds of cases practically, he shall consider all relevant provisions of all applicable Laws like FEMA/Income Tax/RBI /Companies Act etc.