Advance tax is the amount of income tax that is paid much in advance rather than a lump-sum payment at the year-end. Also known as earn tax, advance tax is to be paid in installments as per the due dates decided by the income tax department.
Advance tax is a type of tax payment that is made in instalments based on the projected income for the year rather than paying the entire tax bill at the end of the year. Anyone with an expected tax burden of $10,000 or more for the year is required to pay advance tax. It’s paid in monthly instalments.
What is Advance Tax?
Advance tax is the income tax that is paid in advance instead of lump sum payment at the end of the financial year. It is the tax that you pay as you earn. These payments have to be made in instalments as per due dates provided by the income tax department.
Advance tax meaning, in simple words, would be paying tax liabilities before the end of a fiscal year, is called an advance tax or pay-as-you-earn scheme.
It is payable when the tax liability of an individual exceeds Rs.10000 in a given fiscal year. Notably, such a tax is paid in instalments on due dates and is paid in the same year the income is generated.
It is considered to be favourable for the government as it facilitates a smooth and constant flow of income around the year. In case the estimate of a taxpayer’s income increases or decreases as the instalment progresses, then the payable advance tax amount can be adjusted accordingly.
Who Should Pay Advance Tax?
Salaried individuals, freelancers and businesses– If your total tax liability is Rs 10,000 or more in a financial year, you have to pay advance tax. The advance tax applies to all taxpayers, salaried individuals, freelancers, and businesses.
Senior citizens– People aged 60 years or more who do not run a business are exempt from paying advance tax. So, only senior citizens (60 years or more) having business income must pay advance tax.
Presumptive income for businesses–The taxpayers who have opted for the presumptive taxation scheme under section 44AD have to pay the whole amount of their advance tax in one instalment on or before 15th March. They also have the option to pay all of their tax dues by 31st March.
Presumptive income for professionals– Independent professionals such as doctors, lawyers, architects, etc. come under the presumptive scheme under section 44ADA. They have to pay the whole of their advance tax liability in one instalment on or before 15th March. They can also pay the entire amount by 31st March.
Who is exempt from paying Advance Tax under the Income Tax Act of 1961?
- f the person is a one-of-a-kind;
- Is an Indian resident as defined by the Income Tax Act of 1961;
- At any point during the year, you are 60 years old or older;
- Has no revenue that is taxable under the heading “Business or Profession.”
What is the significance of advance tax?
Advance tax is a type of income tax that is paid in advance for income produced during a given fiscal year. Normally, the tax is due when the income is received. Even yet, under advance tax regulations, the payer must estimate his or her income for the entire year. And the tax is paid at particular intervals depending on this estimate. It is critical that the tax payer assesses his or her income and then calculates the predicted tax on it to see if and how much advance tax is due.
Advance Tax Due Dates For FY 2024-25
| Due Date | Advance Tax Payment Percentage |
|---|---|
| On or before 15th June | 15% of advance tax |
| On or before 15th September | 45% of advance tax (-) advance tax already paid |
| On or before 15th December | 75% of advance tax (-) advance tax already paid |
| On or before 15th March | 100% of advance tax (-) advance tax already paid |
For taxpayers who have opted for Presumptive Taxation Scheme under sections 44AD & 44ADA – Business Income
| Due Date | Advance Tax Payment Percentage |
|---|---|
| On or before 15th March | 100% of advance tax |
How does it work?
1. Estimated total income calculation?
| Particular(Estimated) | Amount |
| Income under the head “Salaries | – |
Income under the head “Income from House Property”
| – |
| Income under the head “Income from Business or Profession | – |
| Income under the head “Capital Gains” | – |
| Income under the head “Income from Other Sources” | – |
| Gross Total Income | – |
| Less: Deductions under section 80C to 80U | – |
| Net Total Income | – |
2. Estimate the advance tax on the above-mentioned net total revenue.
| Particular(Estimated) | Amount |
| Tax calculated on Net Total Income at applicable rates | – |
| Less: Rebate under section 87A | – |
| Balance Tax | – |
| Add: Surcharge (if applicable) | – |
| Total tax after surcharge | – |
| Add: Health & Education Cess @ 4% | – |
| Total tax | – |
| Less: Relief under section 89, 90, 90A or 91 | – |
| Less: TDS, TCS, MAT, AMT already paid | – |
| Total Advance Tax Liability | – |
3. Pay the tax on the due dates indicated for this purpose if the total Advance tax debt determined as above is Rs. 10,000 or more:
Taxpayer Types | Due dates | |||
By 15th June | By 15th Sept | By 15th Dec | By 15th March | |
Everyone who pays taxes (other than those who opted for Presumptive taxation scheme under Section 44AD or 44ADA) | Minimum 15% of Advance Tax | Minimum 45% of Advance Tax | Minimum 75% of Advance Tax | 100% of Advance Tax |
| Taxpayers who chose the Section 44AD or 44ADA Presumptive Taxation Scheme | NIL | NIL | NIL | NIL |
- A corporate taxpayer (i.e., a company) and a taxpayer (other than a company) whose accounts must be audited must pay Advance tax electronically through an authorised bank’s internet banking facility.
Any other taxpayer can pay advance tax in any way he or she wants (either physical mode or electronic mode). Tax is paid in the physical form by depositing the challan at the bank.
Notes-
- Advance tax might be paid on one’s own account or on the Assessing Officer’s order.
- There is no necessity to submit an estimate or income statement to the income tax authorities when a taxpayer computes expected income and pays advance tax on it.
- After paying any of the instalments, if a taxpayer revises the estimated income and tax on it due to some estimated addition or deletion, the remaining future instalments can be amended and paid correspondingly, without having to submit a revised income estimation to the income tax authorities.
- When a taxpayer is compelled to pay advance tax in response to an Assessing Officer’s order, the tax can be paid in full or in part in instalments due after the order’s date.
- Tax paid until the 31st of March in the current fiscal year is considered an advance tax.
- If the last day to pay advance tax falls on a weekend or holiday, it can be paid the next day without incurring any interest costs.
- If an Assessing Officer issues an order, it must be issued before the 1st of March of the current fiscal year.
- In the event that the taxpayer’s advance tax liability exceeds the assessing officer’s, the taxpayer should pay the tax according to his or her own calculations without notifying the officer.
- By accessing https://www.tin-nsdl.com or following the link on the Income Tax website, you can pay Advance Tax either electronically or physically using Challan no./ITNS 280. Note that the taxpayer’s PAN is required on the Challan, and mentioning the incorrect PAN may result in a Rs.10,000 penalty.
- Within 3-4 working days of completing the payment, the tax will be recorded on the taxpayer’s Form 26AS. Confirmation of details can be found on Form 26AS.
What is Advance Tax Late Payment Interest?
Interest on advance tax:
1. Non-payment of advance tax will attract interest under 234B: As per Section 234B, you must pay at least 90% of the total taxes as advance tax or TDS/TCS by 31st March. Failure to make advance tax payments will result in an interest @ 1% on the unpaid amount.
2. Delay in payment of advance tax will attract interest under 234C:
| Particulars | Rate of Interest | Period of Interest | Amount on which interest is calculated |
| If Advance Tax paid by 15th June is less than 15% | 1% per month | 3 months | 15% of Amount* (-) tax paid before June 15 |
| If Advance Tax paid by 15th September is less than 45% | 1% per month | 3 months | 45% of Amount* (-) tax paid before September 15 |
| If Advance Tax paid by 15th December is less than 75% | 1% per month | 3 months | 75% of Amount* (-) tax paid before December 15 |
| If Advance Tax paid by 15th March is less than 100% | 1% per month | 1 month | 100% of Amount* (-) tax paid before March 15 |
How to Pay Advance Tax Online?
1. Visit the e-filing portal of the Income Tax Department of India
2. On the left side of the home page, there is a ‘Quick Links’ section, click on the ‘e-Pay Tax‘ option. You can also search for ‘e-Pay Tax’ in the search bar.
3. On this page, enter your PAN and re-enter to confirm it. Then, enter your mobile number and click on ‘Continue’.
4. Now enter the 6-digit OTP received on your mobile number and ‘Continue’.
5. Select the first box labelled as ‘Income Tax’ and click on ‘Proceed’
6. Select the ‘Assessment Year’ as 2025-26 and ‘Type of Payment’ as ‘Advance Tax (100)’ and click on ‘Continue’.
7. Enter all the tax details
8. Select the payment method and the bank and press ‘Continue’.
9. Preview the challan details and click on ‘Pay Now’. You may also ‘Edit’ these details if required.
10. After completing the payment, you will get an acknowledgement on the next screen. You can see the BSR code and challan serial number on the right side of the challan. Save a copy of this tax receipt for future reference. You will need to enter the BSR code and challan number in your tax return.
FAQs
Are people over the age of 60 exempt from paying advance tax?
Individuals above the age of 60 who do not have income chargeable under Profits and gains from business and profession are free from paying advance tax.
What happens if the advance tax paid exceeds the entire tax liability?
If the advance tax paid exceeds the overall tax liability, the excess will be returned. If the advance amount exceeds 10% of the tax liability, the IT Department will pay 6% p.a. interest.