Tax planning is an essential part of financial management for individuals and businesses in India. One important aspect that often creates confusion is advance tax—what it is, who should pay it, and when. Understanding advance tax rules helps taxpayers avoid penalties, manage cash flows efficiently, and comply with Income Tax regulations.
This guide will explain the concept of advance tax in India, clarify who is liable to pay it, and outline the due dates and amounts for timely payments.
What is Advance Tax?
Advance Tax, also called “pay-as-you-earn” tax, is a system where taxpayers pay their estimated income tax liability in installments during the financial year, instead of paying a lump sum at the year-end.
This system helps the government receive a steady flow of revenue and allows taxpayers to manage their tax payments in smaller chunks rather than a large one-time payment.
Advance tax is applicable when your total tax liability for the financial year exceeds ₹10,000 after considering TDS (Tax Deducted at Source).
Who Should Pay Advance Tax?
Advance tax is applicable to a variety of taxpayers, including individuals, self-employed professionals, businesses, and companies. Here’s a breakdown:
1. Individuals and Salaried Employees
- If your only source of income is salary and your employer deducts TDS, generally you do not need to pay advance tax separately.
- However, if you have additional income such as rental income, capital gains, freelance earnings, or interest income and your total tax liability exceeds ₹10,000 after TDS, you must pay advance tax.
2. Self-Employed and Professionals
- Freelancers, consultants, doctors, lawyers, and other self-employed professionals are required to pay advance tax if their tax liability exceeds ₹10,000, since no TDS is deducted on their income.
3. Business Entities
- Companies, firms, LLPs, and other business entities must pay advance tax irrespective of whether they deduct TDS or not.
4. Other Cases
- Those earning income from sources like capital gains (sale of property, stocks), rental income, lottery winnings, etc., may need to pay advance tax.
When is Advance Tax Paid?
Advance tax payments are made in installments during the financial year, based on estimated income and tax liability. It is important to estimate your taxable income accurately and pay advance tax on time to avoid interest and penalties.
Advance Tax Payment Schedule
The Income Tax Department has prescribed the following advance tax payment schedule for individual taxpayers and non-corporate taxpayers:
| Installment | Due Date | Percentage of Estimated Tax Liability |
| 1st | 15th June | 15% |
| 2nd | 15th September | 45% (cumulative) |
| 3rd | 15th December | 75% (cumulative) |
| 4th | 15th March | 100% (cumulative) |
For corporate taxpayers, the advance tax is usually payable in four installments of 15% by June 15, 45% by September 15, 75% by December 15, and 100% by March 15.
How to Pay Advance Tax?
Advance tax payments can be made easily through the following modes:
- Online Payment: Via the official Income Tax Department website or Net Banking by selecting Challan ITNS 280.
- Offline Payment: At authorized bank branches using Challan ITNS 280.
- After payment, keep the tax payment receipt (challan) safe for filing your income tax return.
Consequences of Not Paying Advance Tax
Failure to pay advance tax on time can attract penalties and interest under Section 234B and 234C of the Income Tax Act:
- Interest under Section 234B: Charged if advance tax paid is less than 90% of assessed tax.
- Interest under Section 234C: Charged for deferment or non-payment of advance tax installments as per due dates.
Penalties can increase your tax liability substantially, so it’s wise to pay advance tax promptly.
FAQs on Advance Tax in India
Q1. Is advance tax applicable on all income types?
Advance tax applies to all income except salary where tax is fully deducted at source by the employer.
Q2. Can I pay advance tax in lump sum?
Yes, advance tax can be paid in a lump sum anytime before the due date of the final installment.
Q3. What happens if I pay excess advance tax?
Excess payment will be adjusted against your final tax liability, or refunded after filing the income tax return.
Q4. How to calculate advance tax?
Estimate your total income for the financial year, compute the tax liability after deductions, subtract TDS, and pay the balance as advance tax.
Conclusion
Advance tax is a crucial component of tax compliance for taxpayers with income beyond salary or with additional income sources. Paying advance tax timely helps avoid hefty interest and penalties, and keeps your tax planning on track.
Whether you are a salaried individual with multiple income streams, a professional, or a business entity, understanding who should pay advance tax and when will help you stay compliant and financially prepared.
If you’re unsure about your advance tax liability or need help with tax planning, consulting a qualified tax professional or chartered accountant is always a good idea.
