Advance Tax

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What is Advance Tax ?

Advance Tax is the tax that individuals and businesses must pay in installments throughout the financial year, instead of paying the entire amount at the end of the year. It is also known as the "pay-as-you-earn tax" and applies to taxpayers whose estimated tax liability exceeds a specified threshold. 

    Advance tax is the payment of income tax in installments instead of a lump sum at the end of the financial year. It is applicable when the total tax liability exceeds a specified threshold. Here are the key rules for advance tax in India (as per the Income Tax Act, 1961):

Who Needs to Pay Advance Tax?

Salaried Individuals: If they have additional income (such as rent, capital gains, business income, or interest income).
Self-Employed Individuals: Freelancers, consultants, and business owners with taxable income.
Companies & Businesses: Corporations and firms with taxable income.

1. Individuals, HUFs, and Businesses

  • If the total tax liability for the financial year exceeds ₹10,000.
  • This includes salaried individuals with additional income (e.g., rental income, capital gains, interest        income).
  • Freelancers and professionals.
  • Businesses under the presumptive taxation scheme (with specific provisions).

    2. Exemptions

  • Senior citizens (aged 60 or above) who do not have income from business or profession.
  • Taxpayers opting for the presumptive taxation scheme under Section 44AD (for businesses) and              Section 44ADA (for professionals) who can pay the entire tax in one installment by March 15.

    • Advance Tax Payment Schedule (India)

    For individuals and businesses, advance tax is paid in the following installments:

    15% of total tax liability by June 15
    45% of total tax liability by September 15
    75% of total tax liability by December 15
    100% of total tax liability by March 15

    For businesses opting for Presumptive Taxation (under section 44AD/44ADA):

    100% of tax liability is to be paid by March 15.

    Consequences of Non-Payment

    Interest under Section 234B and 234C of the Income Tax Act is levied for non-payment or underpayment of advance tax.
    Penalties may also apply if there is a significant shortfall.

    Benefits of Paying Advance Tax

    ✔ Avoids last-minute tax burdens.
    ✔ Reduces interest and penalty charges.
    ✔ Helps the government with steady revenue collection.

    How to Calculate Advance Tax ?

    To calculate Advance Tax, follow these steps:

    Step 1: Estimate Your Total Income-

    Add up all your sources of income for the financial year:
    ✅ Salary Income (if any)
    ✅ Business or Freelancing Income
    ✅ Rental Income
    ✅ Capital Gains (from stocks, property, etc.)
    ✅ Interest Income (FDs, savings, etc.)
    ✅ Other Income

    Step 2: Deduct Eligible Expenses & Deductions-

    Reduce your income by:

    Business expenses (if applicable)
    Deductions under Section 80C to 80U (like EPF, PPF, life insurance, tuition fees, etc.)
    Standard deduction (if salaried)
    Exemptions (HRA, LTA, etc.)

    Step 3: Compute Taxable Income-

    Taxable Income = Total Income – Deductions/Exemptions

    Step 4: Apply Tax Slabs-

    Use the applicable tax slab rates to compute your total tax liability.
    For individuals, tax slabs are different for:

    Old Regime (with deductions)
    New Regime (lower rates but fewer deductions)

    Step 5: Deduct TDS (Tax Deducted at Source)-

    If TDS is already deducted from your salary, interest, or payments received, subtract it from your total tax liability.

    Step 6: Compute Advance Tax Payable-

    If your total tax liability (after TDS) is ₹10,000 or more, you must pay advance tax in the following installments:

    Due Date                 % of Total Tax Payable
    June 15                    15%
    September 15          45%
    December 15           75%
    March 15                 100%

    For businesses under Presumptive Taxation (44AD/44ADA):
    🔹 100% tax is to be paid by March 15

    Step 7: Pay Advance Tax Online-

    Go to e-Pay Tax
    Choose Challan 280 for advance tax payment
    Make payment via net banking, debit card, or UPI

    Example Calculation

    🔹 Freelancer's Income: ₹12,00,000
    🔹 Business Expenses: ₹2,00,000
    🔹 Taxable Income = ₹10,00,000
    🔹 Tax Liability (as per slab) = ₹1,12,500
    🔹 TDS Deducted = ₹20,000
    🔹 Advance Tax Payable = ₹1,12,500 - ₹20,000 = ₹92,500

    ✅ Installments:

    ₹13,875 by June 15
    ₹41,625 by September 15
    ₹69,375 by December 15
    ₹92,500 by March 15

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