What is Advance Tax?
Advance tax means paying income tax during the financial year itself instead of paying the entire tax at the end of the year.
Normally, tax is paid when filing the Income Tax Return. But if your total tax liability in a financial year is ₹10,000 or more, the Income Tax Act requires you to pay tax in instalments during the year. This is called Advance Tax.
Because of this system, the government receives tax regularly instead of waiting until the end of the year.
Advance tax is also known as “Pay As You Earn Tax.”
Who Needs to Pay Advance Tax?
You must pay advance tax if:
✔ Your total tax liability is ₹10,000 or more in a financial year.
Advance tax applies to:
- Salaried employees (if tax liability remains after TDS)
- Freelancers
- Business owners
- Professionals (CA, doctor, lawyer etc.)
- Investors earning capital gains
- Individuals earning rental income
- People earning interest income
Example
Rahul works in a company and also earns ₹3,00,000 from freelance work.
His total tax liability becomes ₹45,000 after deductions.
Since his tax liability is more than ₹10,000, he must pay advance tax.
Who is NOT Required to Pay Advance Tax?
1️⃣ Senior Citizens
A resident senior citizen (age 60 years or more) does not have to pay advance tax if:
- They do not have business or professional income
Example:
Mr. Sharma (age 65) earns:
- Interest income: ₹5,00,000
- Pension: ₹3,00,000
He does not need to pay advance tax.
2️⃣ Presumptive Taxation (Section 44AD / 44ADA)
Businesses or professionals using presumptive taxation scheme:
- They can pay entire advance tax in one instalment by 15 March.
Example:
A consultant declaring income under Section 44ADA can pay 100% advance tax by 15 March.
Advance Tax Due Dates
Advance tax must be paid in four instalments during the year.
| Due Date | Tax Payable |
|---|---|
| 15 June | At least 15% of total tax |
| 15 September | At least 45% of total tax |
| 15 December | At least 75% of total tax |
| 15 March | 100% of total tax |
Any advance tax paid up to 31 March is still considered advance tax.
Advance Tax Example
Let’s understand with a simple example.
Suppose your total tax liability for the year is ₹1,00,000.
You will pay tax like this:
| Date | Amount |
|---|---|
| 15 June | ₹15,000 |
| 15 September | ₹30,000 |
| 15 December | ₹30,000 |
| 15 March | ₹25,000 |
Total = ₹1,00,000
How to Calculate Advance Tax
Follow these steps:
Step 1
Estimate your total income for the year
Include income from:
- Salary
- Business
- Freelancing
- Rent
- Capital gains
- Interest income
Step 2
Subtract deductions
Example:
- Section 80C
- Section 80D
- Section 80G etc.
Step 3
Calculate income tax as per applicable slab.
Step 4
Reduce:
- TDS already deducted
- TCS
- Relief under sections 89/90/91
The remaining tax is advance tax payable.
Example of Advance Tax Calculation
Suppose Neha has the following income:
Salary: ₹8,00,000
Freelance income: ₹4,00,000
Total income = ₹12,00,000
She claims deduction under Section 80C = ₹1,50,000
Taxable income = ₹10,50,000
Tax liability ≈ ₹1,12,500
TDS deducted by employer = ₹70,000
Remaining tax = ₹42,500
Since this amount is above ₹10,000, she must pay advance tax.
How to Pay Advance Tax Online
You can pay advance tax through the Income Tax Portal.
Steps:
1️⃣ Visit the Income Tax e-filing portal
2️⃣ Go to e-Pay Tax
3️⃣ Select Advance Tax (Challan 280)
4️⃣ Enter PAN and details
5️⃣ Choose Assessment Year
6️⃣ Pay through net banking / UPI / debit card
After payment, keep the challan receipt safely.
Interest for Non-Payment of Advance Tax
If advance tax is not paid properly, interest may be charged under:
- Section 234B
- Section 234C
Interest Under Section 234B
This interest is charged when:
- Advance tax not paid, OR
- Advance tax paid is less than 90% of total tax liability
Interest Rate:
1% per month or part of month
Example
Total tax liability = ₹1,00,000
Advance tax paid = ₹50,000
Shortfall = ₹50,000
Interest will be charged from 1 April until payment.
Interest Under Section 234C
This interest is charged when advance tax instalments are not paid on time.
Interest rate:
1% per month
Example:
Suppose tax liability = ₹1,00,000
But by 15 September you paid only ₹20,000 instead of ₹45,000.
Shortfall = ₹25,000
Interest will be charged on ₹25,000.
When Interest Under 234C is NOT Applicable
Interest may not apply if shortfall is due to:
- Capital gains
- Lottery income
- Dividend income
- New business income
Provided the tax is paid in remaining instalments or by 31 March.
Interest for Late Filing of Return (Section 234A)
If you file your Income Tax Return after the due date, interest will apply.
Interest Rate:
1% per month
It is charged on unpaid tax amount.
Benefits of Paying Advance Tax
Paying advance tax on time helps you:
✔ Avoid heavy interest and penalties
✔ Manage tax payments easily
✔ Reduce financial burden at year end
✔ Stay compliant with tax laws
Common Mistakes People Make
❌ Ignoring freelance or side income
❌ Forgetting capital gains tax
❌ Not adjusting TDS
❌ Paying advance tax only in March
❌ Wrong income estimation
Conclusion
Advance tax is an important part of India’s tax system. If your tax liability exceeds ₹10,000, you must pay tax during the year in instalments.
Paying advance tax on time helps you avoid interest under Sections 234B and 234C and ensures smooth tax compliance.
If you have multiple income sources like freelancing, rent, or investments, always estimate your tax liability early and pay advance tax accordingly.
Frequently Asked Questions (FAQs)
Is advance tax mandatory?
Yes, if your tax liability is ₹10,000 or more in a financial year.
Do salaried employees need to pay advance tax?
Usually no, because employers deduct TDS.
But if you have additional income, you may need to pay advance tax.
What happens if I miss an advance tax instalment?
Interest will be charged under Section 234C.
Can advance tax be paid after 15 March?
Yes. Any tax paid before 31 March is treated as advance tax.
Can advance tax be revised?
Yes. You can revise advance tax payments based on updated income estimates.
