In India, advance tax is a system where taxpayers pay their estimated tax liability in installments during the financial year instead of paying the entire tax at the end of the year. It is governed by the Income Tax Act, 1961, and applies to certain categories of taxpayers. Here’s a detailed explanation:
1. Who Is Required to Pay Advance Tax?
Advance tax must be paid by any person whose total tax liability in a financial year exceeds ₹10,000, after accounting for tax deducted at source (TDS). The main categories of taxpayers include:
1. Salaried Individuals:
Usually, salaried employees do not need to pay advance tax because their employer deducts TDS on a monthly basis.
However, if a salaried person has additional sources of income like interest, rental income, capital gains, or freelancing income, and the tax liability exceeds ₹10,000, advance tax is required.
2. Self-Employed Individuals and Professionals:
People running businesses, freelancers, consultants, or professionals who do not have TDS deducted at source must pay advance tax on their estimated income.
This ensures the government receives tax revenue regularly during the year.
3. Companies:
All companies, whether domestic or foreign, are required to pay advance tax on their estimated profits.
This applies regardless of whether they have income from business operations, capital gains, or other sources.
4. Other Income Earners:
Income from capital gains, property rental, interest on savings or fixed deposits, and speculative business income may require advance tax payments if the tax liability exceeds ₹10,000.
2. When Is Advance Tax Paid?
Advance tax is usually paid in installments according to the due dates specified by the Income Tax Department:
For Individuals and Non-Corporate Taxpayers:
15% of estimated tax by 15th June
45% of estimated tax by 15th September
75% of estimated tax by 15th December
100% of estimated tax by 15th March
For Corporate Taxpayers (Companies):
Companies are required to pay 100% of estimated tax by 15th March (though some exceptions exist for special cases).
3. Consequences of Not Paying Advance Tax
If a taxpayer fails to pay advance tax or pays less than the required amount, they are liable to interest under Sections 234B and 234C of the Income Tax Act.
This interest is charged on the shortfall in advance tax and is calculated until the actual payment is made.
Therefore, paying advance tax on time helps avoid unnecessary interest and penalties.
4. Summary
Advance tax is applicable to any taxpayer whose annual tax liability exceeds ₹10,000, after deducting TDS.
Salaried individuals may not need to pay if TDS covers their tax liability.
Self-employed individuals, professionals, companies, and other income earners must pay advance tax on estimated income.
Payment is made in installments throughout the financial year to reduce end-of-year tax burden and ensure regular tax revenue for the government.
Dear Client,
Advance tax allows you to pay your income tax in advance through the course of the financial year rather than making a lump sum payment at the end of the year. Advance tax is required for resident individuals, associations of persons, body of individuals (BOI), firms and companies whose total tax payable after TDS, exceeds ₹10,000.
The following are who must pay advance tax in India –
1. Any self-employed individuals or professional: This includes lawyers, doctors, freelance workers, consultants, chartered accountants, company secretaries, and contractors. Generally, if your income is subject to TDS, you will not have to pay an advance income tax unless your taxable income exceeds ₹10,000.
2. Salaried individuals: In general, salaried individuals do not have a requirement to pay advance taxes since TDS is withheld from taxable salary by your employer. However, if you receive extra income, such as from rental income or capital gains, while not having enough TDS, you may have to pay advance tax.
3. Any business, including companies, partnerships, limited liability companies, and sole proprietorships, must pay advance tax if their estimated tax liability exceeds ₹10,000.
4. Expected capital gains and income received unexpectedly: If you receive capital gains or have had any income that was received without anticipation, for example – through lottery winnings, you will need to pay advance tax on that income.
5. All taxpayers under Sections 44AD and 44ADA of the Income Tax Act, 1961 must pay their entire amount of advance tax in one payment by March 15 of the current financial year.
6. Senior citizens above 60 years of age, who are not working or earning over ₹10,000, are exempt from advance tax.
I hope this answer helps. For any further queries, please do not hesitate to contact us. Thank you.
Dear client,
Advanced tax is a system of paying tax to the government in installments during the financial year instead of which the income is earned, instead of paying the entire tax at the end of the financial year.
This system is governed by the Income Tax Act. 1961, and it applies to certain categories of taxpayers.
Advance tax must be paid by any person whose estimated tax liability in a financial year exceeds ₹10,000, after accounting for tax deducted at source (TDS).
The main categories of taxpayers are as follows:
1. Salaried Individuals:
Usually, salaried employees do not need to pay advance tax because their employer deducts TDS on a monthly basis.
However, if a salaried person has additional sources of income like interest, rental income, capital gains, or freelancing income and the tax liability exceeds ₹10,000, advance tax is required.
2. Self-Employed Individuals and Professionals:
People running businesses, freelancers, consultants, or professionals who do not have TDS deducted at source must pay advance tax on their estimated income. This ensures the government receives tax revenue regularly during the year.
3. Companies:
All companies, whether domestic or foreign, are required to pay advance tax on their estimated profits. This applies regardless of whether they have income from business operations, capital gains, or other sources.
4. Other Income Earners:
Income from capital gains, property rental, interest on savings or fixed deposits, and speculative business income may require advance tax payments if the tax liability exceeds ₹10.000
Therefore, as mentioned above, Advance tax is usually paid in instalments according to the due dates specified by the Income Tax Department:
For Individuals and Non-Corporate Taxpayers:
● 15% of estimated tax by 15th June
● 45% of estimated tax by 15th September
● 75% of estimated tax by 15th December
● 100% of estimated tax by 15th March
Companies are required to pay 100% of estimated tax by 15th March.
If a tax payer fails to pay advance tax or pays less than the amount, the Income Tax Act, 1961 imposes interest under Section 234B and Section 234C for default and deferment of advanced tax instalments respectively.
I hope this answer was helpful. For further queries, please do not hesitate to contact us.
Thank you.
