ITR-filing season can be stressful for many taxpayers, given the time and effort it takes to collate all the information required, organise it and then fill up the return form. Advance tax payment is an effective strategy that can reduce this hard work. Advance tax is a tax-collection system in which you can pay your tax liability in instalments rather than in a lump sum for the full financial year.
In this blog, we will understand advance tax, how it is calculated, and how and when to pay it.
What Is Advance Tax?
Advance tax is the income-tax amount a taxpayer pays in advance for a particular financial year. Generally, taxpayers pay the outstanding tax at the end of the financial year. Because of this one-time payment, they must pay substantial amounts in a single go. But in the case of advance tax, taxpayers can pay the estimated tax in four instalments in the current year only, which helps reduce their financial burden.
Advance tax is applicable to individuals, self-employed professionals, and businesses whose estimated tax liability for the financial year exceeds a certain threshold. Let’s find out who is required to pay advance tax.
Who Should Pay Advance Tax?
As per Section 208 of the Income Tax Act, individuals with an estimated tax liability of Rs. 10,000 or higher for a financial year must make advance tax payments.
Also, taxpayers who opted for a presumptive taxation scheme under Section 44AD or Section 44ADA are liable to pay advance tax.
However, a resident senior citizen aged 60 years or above in the relevant financial year and who does not generate any income from a business or profession is exempt from the obligation to pay advance tax.
ADVANCE TAX PAYMENT FAQ: FOURTH INSTALMENT DEADLINE ON MARCH 15, ELIGIBILITY, MORE
What is exactly this advance tax and how much taxpayers are required to pay?
- Advance tax refers to the amount paid within the same financial year in which the income is earned.
- This payment is divided into four instalments.
- By June 15, 15% of the total tax liability must be paid; by September 14, it increases to 45%, including the June installment.
- December 15 sees a 75% liability, encompassing payments from June and September.
- Finally, by March 15, the entire 100% tax must be settled, as per the income tax law.
What is the eligibility criteria for advance tax payment?
- Any assessee, including salaried employees, with a tax liability of ₹10,000 or more, after accounting for tax deducted/collected at source, is obligated to pay advance tax.
- Individuals with income sources beyond salary, such as rent, capital gains, fixed deposits, lottery winnings, etc., are also required to make advance tax payments.
Who are exempted from paying advance tax?
- Resident senior citizens (aged 60 or above) without income from business or profession are exempt from paying advance tax.
- Salaried individuals with no income other than their salary, as tax is deducted by employers, are also exempt from advance tax instalment payments.
- Any person opting for a presumptive taxation scheme (except Section 44AE) is not required to pay advance tax in four instalments but can pay the whole amount of advance tax on or before March 15 of the financial year.
How can taxpayers pay advance tax?
- E-payment is mandatory for all corporates and assesses whose accounts require auditing under Section 44AB of the Income Tax Act, 1961.
- E-payment is recommended for other taxpayers as well, ensuring accurate crediting of payments.
What happens if taxpayers miss paying advance tax?
- Any shortfall or default in paying advance tax instalments incurs interest burdens.
- Section 234C imposes a 1% interest on the shortfall in each monthly instalment.
- A margin of up to 10% is allowed on the total tax; falling below this threshold triggers Section 234B, requiring the taxpayer to pay 1% interest for each month of delay.
- This means if taxpayers pay less than 90% of the assessed tax within the deadline, then section 234B requires the taxpayer to pay 1% interest for each month in the assessment year when the shortfall and delay continue.
- Notably, part of a month is also counted as a full month for interest calculation.
How to Pay Advance Tax Online?
Here are the steps to pay advance tax online:
Step 1: Visit the income tax portal https://www.incometax.gov.in/iec/foportal/
Step 2: Select the ‘e-Pay Tax’ option under quick links.
Step 3: Enter your PAN number. Then enter your mobile number to receive an OTP. Click on ‘Continue’.
Step 4: Enter the OTP received, and click on ‘Continue’.
Step 5: Verify your PAN number and name, and click on ‘Continue’.
Step 6: Click on ‘Proceed’ under the ‘Income tax’ option..
Step 7: Select the assessment year, select the ‘Advance Tax (100)’ option under ‘Type of Payment’, and click on ‘Continue’.
Step 8: Enter your tax amount. Fill in only the tax amount, and click on ‘Continue’.
Step 9: Select the payment method and click on ‘Continue’.
Step 10: Verify your details and tax amount, and click on ‘Continue’.
Step 11: Accept the terms and conditions and make your advance-tax payment.
You also have the option to deposit the advance tax at the bank counter also. For that, select the ‘Pay at Bank Counter’ option in Step 9.
After this, you must verify your details, click the ‘Continue’ button, and download your challan. Finally, you have to visit your bank branch with a copy of the challan and make a payment.
Note: You can also make payment of advance tax by logging in to the e-filing portal. Click on the ‘E-file’ tab, select the e-Pay tax option, and follow the above steps.
Advance Tax Late Payment Interest
As per Section 234C, if you fail to the pay advance tax by the due date, then you will have to pay simple interest on the outstanding tax amount at 1% per month. Check the table below to understand how the interest will be calculated :
| Particulars | Rate of Interest | Period of Interest | Interest Payable on Amount |
| If the advance tax paid is less than 15% on 15th June | 1% per month | 3 months | 15% of Tax amount less tax paid before June 15 |
| If the advance tax paid is less than 45% on 15th September | 1% per month | 3 months | 45% of Tax amount less tax paid before September 15 |
| If the advance tax paid is less than 75% on 15th December | 1% per month | 3 months | 75% of Tax amount less tax paid before December 15 |
| If the advance tax paid is less than 100% on 15th March | 1% per month | 1 month | 100% of Tax amount less tax paid before March 15 |