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Taxation
All about advance tax and how to pay it
Advance tax accounts for a significant share of the income tax system and plays a vital role in the efficient collection of taxes by the government. It is a method when you pay taxes in advance instead of paying a lump sum amount at the end of the financial year.Understanding the advance tax meaning is crucial, specifically for individuals, freelancers, and businesses, to ensure compliance with tax regulations and to avoid penalties.
What is advance tax?
Advance tax, also known as income tax advance, means you pay your tax regularly on your income earned throughout the year. Instead of paying taxes in one go at the end of the financial year, you can estimate your income and pay taxes in installments throughout the year. You can also make the advance tax payment online through the I-T department's website.
Who is liable to pay advance tax?
- Salaried individuals, freelancers, and businesses: Individuals and businesses with income sources such as salaries, freelance earnings, business profits, rental income, etc., are required to pay advance tax if their total tax liability exceeds ₹10,000, after adjusting TDS, in a financial year.
- Senior citizens: Senior citizens who have income from business or profession are liable to pay advance tax. However, they are exempted if they do not have such a source of income.
- Presumptive income for businesses: Taxpayers opting for the presumptive taxation scheme under Section 44AD of the Income Tax Act have to pay the whole income tax advance in one installment on or before March 15. They also have option pay their tax dues on or before March 31.
- Presumptive income for professionals: Professionals such as doctors, lawyers, architects, etc., opting for the presumptive taxation scheme under Section 44ADA are liable to pay their tax liability as advance tax liability in a single installment (i.e 100% of total tax payable) on or before March 15. They also have option pay their tax dues on or before March 31.
- Any payment before advance tax made on or before March 31 shall be as advance tax paid during the financial year.
| Installment No. | Due Date | Principal | Interest | Total Payment | Balance |
|---|---|---|---|---|---|
| 1 | 2025-08-01 | $500 | $50 | $550 | $4,500 |
| 2 | 2025-09-01 | $500 | $45 | $545 | $4,000 |
For professionals and businesses that have opted for the Presumptive Taxation Scheme under Sections 44AD and 44ADA, 100% of advance tax must be paid on or before March 15.
How to pay advance tax online?
Paying income tax advance online is a convenient process:
- Visit the IT department's e-filing portal.
- Go to the 'e-Pay Taxes' section. you can find it on the left under 'Quick Links'.
- Enter the required details such as PAN/TAN and mobile number.
- You will need to authenticate it with the 6-digit OTP you'll get on your number.
- Select the 'Income Tax' box. After proceeding, select the ‘Assessment Year’ and the ‘Type of Payment’ as ‘Advance Tax (100)’.
- Enter all your tax details carefully.
- Choose the bank and payment mode through which you want to make the payment. You can use Net Banking, a Debit Card, or a Credit Card.
- Once the payment is successful, you will receive an acknowledgement with the BSR code and challan serial number. You need to save it as you'll need to enter these details in your tax return.
What is advance tax late payment interest?
If you, as a taxpayer, fail to pay advance tax or pay less than the prescribed amount, you are liable to pay interest under Sections 234B and 234C of the I-T Act. The interest is calculated at a specified rate on the amount of shortfall and the period of delay.
As per Section 234B, you must pay a minimum of 90% of the total taxes (TDS/TCS or as advance tax) by March 31. If you fail to do so, you will have to pay an interest of 1% of the unpaid amount.
As per Section 234C, a delay in payment will attract the below interest:
| Particulars | Rate of interest | Period of interest | Amount on which interest is calculated |
|---|---|---|---|
| If the advance tax paid by 15th June is less than 12% | 1% per month | 3 months | 15% of amount (-) tax paid before June 15 |
| If the advance tax paid by 15th September is less than 36% | 1% per month | 3 months | 45% of amount (-) tax paid before September 15 |
| If the advance tax paid by 15th December is less than 75% | 1% per month | 3 months | 75% of amount (-) tax paid before December 15 |
| If the advance tax paid by 15th March is less than 100% | 1% per month | 3 months | 100% of amount (-) tax paid before March 15 |
How to calculate advance tax?
The calculation of advance tax starts by estimating other income (professional income, interest earned, capital gains, rental income, or any other). You can add your salary to that number and get your gross taxable income. Considering the tax slab applicable, calculate the tax payable and deduct the TDS as per the slab applicable. If the amount exceeds ₹10,000, you are liable to pay an income tax advance.
To calculate your advance tax liability, estimate your total income from all sources and deduct all applicable deductions and exemptions. Compute the taxable income according to the applicable income tax slab rate for individuals. Assuming your advance tax liability comes to Rs 2 lakh, you need to pay it as per the schedule below.
| Due Date | Advance Tax Payable | Advance Tax Payable Amount (Rs.) | Amount Already Paid (Rs.) | Balance To Be Paid (Rs.) |
|---|---|---|---|---|
| 15th June | 15% | 2,00,000 x 15% = 30,000 | Nil | 30,000 |
| 15th September | 45% | 2,00,000 x 45% = 90,000 | 30,000 | 60,000 |
| 15th December | 75% | 2,00,000 x 75% = 150,000 | 90,000 | 60,000 |
| 15th March | 100% | 2,00,000 x 100% = 2,00,000 | 1,50,000 | 50,000 |
| Total Amount Paid | 2,00,000 |
Which forms are required in advance tax?
Challan No. ITNS 280 must be duly filled out and requires your PAN details, the correct assessment year, and the appropriate mode of payment.
Also Read: ITR filing FY 2023-24: Know these important dates
FAQs
When should I pay advance tax?
Advance tax should be paid in installments as per the specified due dates.
How to use the challan correction feature?
You can rectify any errors in the challan using the challan correction feature on the Income Tax Department's e-filing portal.
Is an NRI liable for payment of advance tax?
NRIs are liable to pay advance tax if their income in India exceeds the basic exemption limit.
Why should advance tax payments be made?
Section 208 makes it obligatory to pay advance tax where the advance tax payable is Rs. 10,000 or more subject to applicability as mentioned above.
What happens if the advance tax paid is more than the total tax liability?
If the advance tax paid exceeds the total tax liability, the taxpayer is eligible for a tax refund.
What is the fine for failing to pay advance tax by the due date?
Interest is levied under Sections 234B and 234C for late or shortfall payment of income tax advance.
Will penalties be levied in case the advance tax is not paid?
Yes, penalties may be levied for non-payment or late payment of advance tax in form of Interest.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
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