Advance tax is a system where taxpayers pay their income tax liability in installments during the financial year, rather than paying the entire amount at the end. Understanding advance tax due dates, calculation methods, applicability, and compliance requirements is essential to avoid interest penalties and ensure smooth tax compliance. This comprehensive guide covers everything you need to know about advance tax in India.
[IMAGE::Advance Tax Payment Guide]
What is Advance Tax?
Advance tax, also known as "pay-as-you-earn" tax, is the payment of income tax in installments during the financial year based on estimated income. Instead of paying the entire tax liability at the time of filing the return, taxpayers are required to pay tax in advance as they earn income throughout the year.
The advance tax system helps the government receive tax revenue throughout the year and ensures taxpayers don't face a large tax burden at the end of the financial year. It also helps taxpayers manage their cash flow better by spreading tax payments across the year.
Who is Liable to Pay Advance Tax?
Advance tax is applicable to all taxpayers whose estimated tax liability for the financial year exceeds Rs. 10,000. This includes:
Salaried individuals with income from other sources (interest, capital gains, etc.)
Self-employed professionals and freelancers
Business owners and traders
Senior citizens (aged 60-79) without business income are exempt
Super senior citizens (aged 80+) are exempt from advance tax
Advance Tax Due Dates for FY 2025-26
Advance tax is payable in four installments during the financial year:
For Individuals, HUFs, and Non-Corporate Taxpayers
15th June: 15% of estimated tax liability
15th September: 45% of estimated tax liability (cumulative)
15th December: 75% of estimated tax liability (cumulative)
15th March: 100% of estimated tax liability (cumulative)
For Corporate Taxpayers
15th June: 15% of estimated tax liability
15th September: 45% of estimated tax liability (cumulative)
15th December: 75% of estimated tax liability (cumulative)
15th March: 100% of estimated tax liability (cumulative)
Note: If the due date falls on a holiday, the next working day is considered as the due date.
How to Calculate Advance Tax
To calculate advance tax, you need to:
Estimate your total income for the financial year
Calculate tax liability on estimated income
Deduct TDS and TCS already deducted
The balance is your advance tax liability
Pay in installments as per due dates
Calculation Example
Example: Estimated tax liability for FY 2025-26 is Rs. 1,00,000, TDS already deducted is Rs. 20,000:
Total Tax Liability: Rs. 1,00,000
Less: TDS: Rs. 20,000
Advance Tax Payable: Rs. 80,000
15th June: Rs. 12,000 (15%)
15th September: Rs. 36,000 (45% - Rs. 12,000 already paid)
15th December: Rs. 24,000 (75% - Rs. 36,000 already paid)
15th March: Rs. 20,000 (100% - Rs. 60,000 already paid)
Income Subject to Advance Tax
Advance tax is applicable on all types of income:
Salary income (if tax liability exceeds Rs. 10,000 after TDS)
Income from business or profession
Income from house property
Capital gains (short-term and long-term)
Income from other sources (interest, dividends, etc.)
Exemptions from Advance Tax
The following taxpayers are exempt from paying advance tax:
Senior Citizens (60-79 years): Without business or profession income
Super Senior Citizens (80+ years): Completely exempt
Salaried Employees: If entire tax is covered by TDS
Taxpayers with tax liability less than Rs. 10,000: For the financial year
How to Pay Advance Tax
Advance tax can be paid through various methods:
Online Payment Methods
Income Tax Portal: Pay directly through the e-filing portal
Net Banking: Through authorized banks
Debit Card: Using debit card on the tax portal
UPI: Using UPI payment methods
Offline Payment Methods
Challan 280: Download and pay at authorized bank branches
Over the Counter: At designated bank branches
Interest on Late Payment of Advance Tax
Failure to pay advance tax or paying less than required attracts interest:
Section 234B - Interest for Non-Payment/Short Payment
If advance tax paid is less than 90% of assessed tax:
Interest @ 1% per month on the shortfall
Calculated from April 1st of assessment year to date of payment
Maximum interest period: 3 months
Section 234C - Interest for Deferred Installments
If advance tax is not paid on time or paid less than required in any installment:
Interest @ 1% per month on the shortfall
Calculated for 3 months from due date of each installment
Applies to each delayed installment separately
Revision of Advance Tax Estimate
Taxpayers can revise their advance tax estimate if income changes during the year:
Revise estimate if actual income differs significantly from estimated income
Pay additional advance tax in subsequent installments
No penalty for revision, but interest may apply if revised estimate is still short
Advance Tax for Capital Gains
Special provisions for advance tax on capital gains:
If capital gains arise during the year, advance tax should be paid in the remaining installments
For capital gains arising in March, entire tax can be paid by March 15th
No interest penalty if advance tax is paid within the same financial year
Filing Advance Tax in Income Tax Return
While filing ITR, you need to:
Report advance tax paid in Schedule IT (Taxes Paid)
Mention dates and amounts of each installment
Claim credit for advance tax paid
Pay balance tax (if any) along with interest (if applicable)
Claim refund (if advance tax paid exceeds actual tax liability)
Key Points to Remember
Advance tax is mandatory if tax liability exceeds Rs. 10,000
Pay in 4 installments: 15% by June 15, 45% by Sept 15, 75% by Dec 15, 100% by March 15
Senior citizens (60-79) without business income are exempt
Super senior citizens (80+) are completely exempt
Late payment attracts interest @ 1% per month under Sections 234B and 234C
Can revise advance tax estimate if income changes during the year
Advance tax can be paid online through the income tax portal or offline through challan
Keep records of all advance tax payments for ITR filing
Benefits of Paying Advance Tax
Avoid Interest Penalties: Timely payment avoids interest under Sections 234B and 234C
Better Cash Flow Management: Spreads tax payments across the year
Compliance: Ensures smooth tax compliance and avoids last-minute hassles
Peace of Mind: No worry about large tax payments at year-end
Refund Processing: If excess tax paid, refund is processed faster
Conclusion
Advance tax is an important compliance requirement for taxpayers with significant tax liability. Understanding due dates, calculation methods, and payment procedures helps avoid interest penalties and ensures smooth tax compliance. Regular monitoring of income and timely payment of advance tax installments can help you stay compliant and manage your tax obligations effectively throughout the year.