What is Advance Tax?
Advance tax is a system where taxpayers pay income tax in advance rather than waiting for the financial year to end. It is calculated based on the taxpayer’s estimated income for the year. Any individual, business, or entity with a total tax liability exceeding ₹10,000 in a financial year is required to pay advance tax.
It follows a “pay-as-you-earn” approach, where taxpayers pay tax in four installments based on their projected income for the year. This provision under the Indian Income Tax Act mainly applies to income from sources other than salary, such as:
- Business or professional income
- Rental income from house property
- Capital gains
- Other income sources like interest on fixed deposits or lottery winnings
Who Needs to Pay Advance Tax?
Advance tax payments are applicable to the following taxpayers:
- General Taxpayers
- Salaried individuals:Usually, salaried individuals pay tax through TDS (Tax Deducted at Source). However, if they earn additional income (such as from rental properties or capital gains) and their total tax liability exceeds ₹10,000, they must pay advance tax.
- Businesses & Freelancers:Individuals running businesses or working as freelancers must pay advance tax if their tax liability crosses ₹10,000 in a financial year.
- Senior Citizens:Senior citizens aged 60 years or above who do not earn income from business or profession are exempt from paying advance tax.
- Presumptive Taxation Scheme:Taxpayers opting for presumptive taxation under Sections 44AD or 44ADA must pay their entire advance tax in a single installment by 15 March or 31 March of the financial year.
Advance Tax Payment Due Dates for FY 2025–26
The due dates and percentages of advance tax payable for FY 2025–26 are:
- On or before 15 June 2025:15% of the total advance tax liability
- By 15 September 2025:45% of the total advance tax liability (after deducting the amount already paid)
- By 15 December 2025:75% of the total advance tax liability (after deducting previous installments)
- By 15 March 2026:100% of the total advance tax liability (after adjusting earlier payments)
For taxpayers under the presumptive taxation scheme, the entire tax must be paid in a single installment by 15 March 2026.
How is Advance Tax Calculated?
To calculate advance tax, follow these steps:
- Estimate Total Income:Include income from all sources, such as capital gains, rental income, professional earnings, salary, or interest on deposits.
- Deduct Eligible Deductions:Reduce your taxable income by claiming deductions under Sections 80C, 80D, and other applicable sections.
- Compute Tax:Apply the current tax slab rates to your net income.
- Subtract TDS:Deduct the TDS already paid or expected to be deducted.
If your final tax liability exceeds ₹10,000, you must pay advance tax.
Example: Advance Tax Calculation under the New Tax Regime
Ajay, a freelancer, expects a gross receipt of ₹20,00,000 in FY 2025–26. His estimated expenses are ₹12,00,000, and he has deductions under Sections 80C and 80D.
How to Pay Advance Tax Online?
- Visit the Income Tax Department’s e-filing portal.
- Select ‘e-Pay Tax’under the ‘Quick Links’
- Enter your PAN, confirm it, and provide your mobile number.
- Enter the OTP received on your phone.
- Choose ‘Income Tax’as the applicable tax.
- Select payment type ‘100 –Advance Tax’.
- Fill in the tax amount and select your payment method.
- Review the challan details and click ‘Pay Now’.
- Save the payment receipt for future reference.
Interest on Late Payment of Advance Tax
- Section 234B:If at least 90% of the total tax liability is not paid by 31 March, interest of 1% per month is charged on the shortfall.
- Section 234C:A 1% monthly interest is levied for delays in paying the required quarterly installments.
Tax Payable vs. Tax Refundable
At the end of the financial year, after adjusting advance tax payments and TDS, a taxpayer may have either additional tax payable or a refund due. Advance tax ensures smaller, periodic payments rather than a large lump sum at year-end.
Benefits of Paying Advance Tax
- For the Government:Maintains a regular flow of revenue throughout the year.
- For Taxpayers:Reduces the burden of a large payment at the end of the year and avoids penalties or interest for late payment.
Checking Advance Tax Payment Status
- Visit the TIN NSDLwebsite and use the CIN-based view.
- Enter the required details to verify the payment status.
- Alternatively, log in to your e-filing accountand check Form 26AS.
Handling Unpredictable Income
For irregular incomes such as capital gains or lottery winnings, taxpayers should pay advance tax in the remaining installments or by 31 March to avoid interest under Section 234C.
Minimum Payment by 31 March
To avoid penalties, at least 90% of the total tax liability must be paid by 31 March; otherwise, interest is charged at 1% per month on the unpaid amount.
Cheque Payments for Advance Tax
When paying via cheque:
- Use a separate challan for each payment type.
- Ensure the correct PAN is quoted.
- Verify that the bank’s acknowledgment includes the BSR code, deposit date, and challan serial number.
Downloading the Advance Tax Challan
- Visit the TIN NSDLwebsite and use the CIN-based option.
- View and download the challan with all details.
- Save or print the challan for future use.
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Disclaimer: Aim of this article is to give basic knowledge about the topic to people who are not in touch with Indian tax norms. When anybody is dealing with these kinds of cases practically, he shall consider all relevant provisions of all applicable Laws like FEMA/Income Tax/RBI /Companies Act etc.
