How Does Advance Tax Payment Help In Tax Planning?

Advance tax is a system where taxpayers pay their taxes in installments throughout the financial year instead of making a lump sum payment at the end. This helps in better financial planning and avoids penalties due to late payments.

Steps to Take for Advance Tax Payment

1. Determine Advance Tax Liability

If the total tax liability exceeds ₹10,000 in a financial year, advance tax payment is mandatory.

Applies to salaried employees with additional income, freelancers, and businesses.

2. Follow the Advance Tax Payment Schedule

• 15% of total tax liability by June 15.
• 45% of total tax liability by September 15.
• 75% of total tax liability by December 15.
• 100% of total tax liability by March 15.

3. Avoid Interest Penalties Under Sections 234B & 234C

Failure to pay advance tax on time attracts interest under Section 234B (1% per month).

Delayed payments lead to penalties under Section 234C.

4. Enhance Cash Flow Management

Paying taxes in installments helps businesses and individuals maintain liquidity.

Reduces last-minute financial burdens.

Legal Actions and Protections

• Timely Payment: Use Challan 280 on the Income Tax portal to pay advance tax.
• Accurate Calculation: Estimate income correctly to avoid underpayment.
• Claiming Refunds: If excess tax is paid, file an Income Tax Return (ITR) to get a refund.

Example

A freelancer expects an annual income of ₹12 lakh, with a total tax liability of ₹1.5 lakh. Instead of paying this amount at once, they can:

• Pay ₹22,500 by June 15.
• Pay ₹67,500 by September 15.
• Pay ₹1,12,500 by December 15.
• Pay ₹1,50,000 by March 15.

This structured approach ensures they meet tax obligations without facing penalties.