Advance Tax: Who Pays, How Much, and When

Advance tax is essentially paying your income tax liability in advance, throughout the financial year, instead of a lump sum at year-end. This applies if your estimated tax liability for the year exceeds ₹10,000. It's a "pay-as-you-earn" system designed to ensure a steady revenue stream for the government and prevent a large tax burden on taxpayers at the time of filing their annual returns.

Who needs to pay advance tax in India?

Any individual, HUF, company, or firm whose estimated tax liability for the financial year is ₹10,000 or more is required to pay advance tax. This includes income from all sources, such as salary, business profits, capital gains, and other income. Senior citizens (individuals aged 60 years or more) who do not have income from business or profession are exempt from paying advance tax.

What is the advance tax payment schedule and how are the installments calculated?

Advance tax is paid in four installments throughout the financial year, with specific percentages of your total tax liability due by certain dates. The calculation is based on your estimated income for the entire financial year.

Here's the schedule and the minimum percentage of your total tax liability to be paid by each due date:

Due Date (on or before)	Cumulative Percentage of Tax Payable
June 15th	15% of the estimated tax
September 15th	45% of the estimated tax
December 15th	75% of the estimated tax
March 15th	100% of the estimated tax

For example, if your estimated total tax liability for the financial year is ₹1,00,000:

• By June 15th, you should have paid at least ₹15,000.
• By September 15th, you should have paid at least ₹45,000 (including the first installment).
• By December 15th, you should have paid at least ₹75,000 (including previous installments).
• By March 15th, you should have paid the full ₹1,00,000.

It's important to note that these percentages are cumulative. You need to assess your income and tax liability periodically and adjust your advance tax payments accordingly.

Are there any special rules for taxpayers opting for presumptive taxation schemes?

Yes, taxpayers who opt for presumptive taxation schemes under Section 44AD or Section 44ADA of the Income Tax Act have a simplified advance tax payment schedule. They are required to pay their entire advance tax liability in a single installment.

For taxpayers opting for presumptive taxation under Sec. 44AD of the Income Tax Act, 1961 (for eligible businesses) or Sec. 44ADA of the Income Tax Act, 1961 (for eligible professionals), the entire advance tax liability must be paid on or before March 15th of the financial year. This simplifies compliance for small businesses and professionals by reducing the number of payment obligations.

What are the consequences of not paying advance tax or paying less than required?

Failure to pay advance tax or paying less than the prescribed amount can lead to interest charges under Sections 234B and 234C of the Income Tax Act, 1961. These sections penalise delayed or insufficient advance tax payments.

Interest under Section 234B

Interest under Sec. 234B of the Income Tax Act, 1961 is levied if you fail to pay advance tax, or if the advance tax paid is less than 90% of your assessed tax. This interest is charged at 1% per month or part of a month from April 1st of the assessment year until the date of payment of tax.

Example: Suppose your total tax liability for FY 2023-24 (AY 2024-25) is ₹1,00,000.

• The minimum advance tax you should have paid is 90% of ₹1,00,000 = ₹90,000.
• If you paid only ₹70,000 as advance tax, you are short by ₹20,000.
• Interest under Section 234B will be charged on this ₹20,000 at 1% per month from April 1, 2024, until the date you pay the balance tax. If you pay the balance on July 10, 2024, interest will be for 4 months (April, May, June, July).
• Interest = ₹20,000 * 1% * 4 months = ₹800.

Interest under Section 234C

Interest under Sec. 234C of the Income Tax Act, 1961 is levied for deferment of advance tax installments. This interest is also charged at 1% per month or part of a month for the period of default for each installment.

Example: Continuing with the previous example, total tax liability ₹1,00,000.

• Installment 1 (due June 15th): You should have paid ₹15,000. If you paid only ₹10,000, you are short by ₹5,000. Interest will be charged on ₹5,000 for 3 months (June 16th to September 15th) at 1% per month.
  • Interest = ₹5,000 * 1% * 3 months = ₹150.
• Installment 2 (due September 15th): You should have paid a cumulative ₹45,000. Suppose you paid ₹25,000 in the second installment, making your total payment ₹10,000 (1st) + ₹25,000 (2nd) = ₹35,000. You are short by ₹45,000 - ₹35,000 = ₹10,000. Interest will be charged on ₹10,000 for 3 months (September 16th to December 15th) at 1% per month.
  • Interest = ₹10,000 * 1% * 3 months = ₹300.
• Installment 3 (due December 15th): You should have paid a cumulative ₹75,000. Suppose you paid ₹20,000 in the third installment, making your total payment ₹35,000 + ₹20,000 = ₹55,000. You are short by ₹75,000 - ₹55,000 = ₹20,000. Interest will be charged on ₹20,000 for 3 months (December 16th to March 15th) at 1% per month.
  • Interest = ₹20,000 * 1% * 3 months = ₹600.
• Installment 4 (due March 15th): You should have paid a cumulative ₹1,00,000. Suppose you paid ₹15,000 in the fourth installment, making your total payment ₹55,000 + ₹15,000 = ₹70,000. You are short by ₹1,00,000 - ₹70,000 = ₹30,000. Interest will be charged on ₹30,000 for 1 month (March 16th to March 31st) at 1% per month.
  • Interest = ₹30,000 * 1% * 1 month = ₹300.

Total interest under 234C = ₹150 + ₹300 + ₹600 + ₹300 = ₹1,350. In addition, if the total advance tax paid (₹70,000) is less than 90% of the assessed tax (₹90,000), interest under 234B will also apply on the shortfall of ₹20,000 from April 1st of the assessment year.

How can I pay advance tax online in India?

Advance tax can be conveniently paid online through the e-Pay Tax service on the official income tax e-filing portal using Challan 280.

Here's a step-by-step guide:

1. Visit the e-Pay Tax Portal: Go to the official income tax e-filing website (www.incometax.gov.in) and navigate to the "e-Pay Tax" section.
2. Select Tax Payment Category: Choose "Income Tax (0021)" for companies or "Income Tax (0020)" for non-companies (individuals, HUFs, firms).
3. Select Assessment Year: Choose the relevant assessment year for which you are paying advance tax. For example, for income earned in FY 2023-24, the assessment year is AY 2024-25.
4. Select Type of Payment: Under "Type of Payment," select "Advance Tax (100)".
5. Mode of Payment: Choose your preferred payment method – Net Banking or Debit Card.
6. Enter PAN/TAN: Provide your Permanent Account Number (PAN) or Tax Deduction and Collection Account Number (TAN) if applicable.
7. Enter Other Details: Fill in other mandatory details like your address, email ID, and mobile number.
8. Verify and Confirm: Review all the entered details carefully before proceeding.
9. Make Payment: You will be redirected to your bank's payment gateway to complete the transaction.
10. Download Challan: After successful payment, a Challan Identification Number (CIN) will be generated, and you can download the Challan 280 receipt. This receipt is crucial for your records and for filing your income tax return.

How SP & SC helps

Navigating the complexities of advance tax, understanding payment schedules, and ensuring compliance can be challenging. Our expert team at SP & SC Legal and Taxation Services provides comprehensive assistance with income tax compliance, including advance tax calculations, payment guidance, and filing your annual returns accurately and on time. Visit our Income Tax Filing services page at /services/compliance/income-tax-filing to learn more.

Frequently asked questions

What if my income changes during the financial year?

If your income changes significantly during the financial year, you should re-estimate your total tax liability and adjust your subsequent advance tax installments accordingly. The system is flexible, allowing you to pay more or less in later installments to meet the cumulative percentage requirements.

Is advance tax applicable to capital gains income?

Yes, advance tax is applicable to capital gains income. Since capital gains can be unpredictable, you are required to pay advance tax on such gains only after the transaction occurs. The due dates for installments that have already passed will be considered met if you pay the tax on capital gains in the subsequent installments.

Can I pay advance tax after March 15th?

You can still pay your tax liability after March 15th but before filing your Income Tax Return. This payment is typically referred to as "Self-Assessment Tax" under Challan 280 (Type of Payment: 300). However, paying after March 15th will attract interest under Sections 234B and 234C for the delay.

What is the difference between advance tax and self-assessment tax?

Advance tax is paid throughout the financial year based on estimated income, in installments. Self-assessment tax is paid after the end of the financial year but before filing your Income Tax Return, to clear any remaining tax liability after accounting for advance tax, TDS, and other credits.

Are salaried individuals required to pay advance tax?

Salaried individuals are generally not required to pay advance tax if their only income is salary, as their employer deducts Tax Deducted at Source (TDS) regularly. However, if a salaried individual has other significant income sources (e.g., rental income, capital gains, business income) where TDS is not deducted or is insufficient, and their total tax liability exceeds ₹10,000, they must pay advance tax.