Answer By law4u team
Advance tax in India is a system of paying income tax in installments before the end of the financial year, rather than paying the entire tax liability at the time of filing the income tax return. It is sometimes called “pay-as-you-earn” tax and applies to taxpayers whose tax liability exceeds ₹10,000 in a financial year. Here’s a detailed explanation: 1. Definition of Advance Tax Advance tax is the payment of estimated income tax in advance, based on the income earned during the year. It ensures that the government receives tax revenue throughout the year, instead of waiting until the end of the financial year. Key points: It is mandatory for self-employed individuals, professionals, and businesses. Salaried employees usually have tax deducted by the employer under TDS (Tax Deducted at Source), so advance tax may not apply unless they have additional income. The tax is calculated on total estimated income, including salary, business profits, capital gains, interest, and other sources. 2. Who Should Pay Advance Tax? Advance tax is required if: Total tax liability for the year exceeds ₹10,000 after accounting for TDS. Taxpayers include: Self-employed professionals (doctors, lawyers, consultants, etc.) Business owners Investors with significant capital gains or interest income Freelancers and contractors Salaried employees generally do not pay advance tax separately unless they have other sources of income. 3. Due Dates for Advance Tax Payment The Income Tax Department specifies installment dates for advance tax payments: For individuals and corporate taxpayers (other than companies under presumptive scheme): 15th June: 15% of estimated tax 15th September: 45% of estimated tax (cumulative) 15th December: 75% of estimated tax (cumulative) 15th March: 100% of estimated tax For taxpayers under the presumptive taxation scheme (Section 44AD, 44ADA, 44AE): 15th March: 100% of estimated tax > These dates allow taxpayers to pay tax in stages based on their estimated income, reducing the burden of paying a lump sum at the year-end. 4. How Advance Tax Is Calculated 1. Estimate total income for the financial year from all sources. 2. Deduct exemptions, deductions, and reliefs (like 80C, 80D, etc.). 3. Compute total tax liability based on applicable tax slabs. 4. Subtract TDS already deducted by employers or banks. 5. Pay the balance in installments according to the due dates. Example: Estimated total tax: ₹1,00,000 TDS deducted by employer: ₹40,000 Balance to pay as advance tax: ₹60,000 Payment schedule: 15th June: ₹15,000 15th September: ₹15,000 15th December: ₹15,000 15th March: ₹15,000 5. Consequences of Not Paying Advance Tax If advance tax is not paid or underpaid: Interest is charged under Sections 234B and 234C of the Income Tax Act. The interest rate is usually 1% per month for the shortfall from the due date until payment. Avoiding advance tax can result in extra financial burden at the end of the year. 6. Payment Methods Advance tax can be paid through: Online payment via the income tax portal (challan ITNS 280) Bank branches authorized to collect advance tax Net banking or mobile banking apps of banks Payment can be made through a single installment or multiple installments, but following the due dates avoids interest penalties. 7. Summary Advance tax is a system of paying estimated income tax in advance, before filing the final return. It is mandatory for taxpayers whose tax liability exceeds ₹10,000. Payments are made in installments through the year. Proper advance tax payment avoids interest and penalties. For salaried individuals, advance tax is usually covered by TDS, but self-employed or those with other incomes must calculate and pay it.
