Advance Tax: Who Needs to Pay and When?

1. Introduction

Paying timely income tax is a fundamental civic responsibility. However, many taxpayers defer the calculation and payment of their tax liabilities until the end of the financial year. This practice often results in last-minute stress, potential cash flow difficulties, and, in some cases, penalties for delayed payments.

To address these challenges, the system of Advance Tax—also referred to as the “pay-as-you-earn” method—has been instituted. Under this system, taxpayers are required to discharge their annual tax liabilities in periodic installments throughout the year. This approach not only promotes timely compliance but also mitigates financial burden on the taxpayer and facilitates a stable and consistent flow of revenue for the government.

• What is Advance Tax?

Advance Tax is not a separate tax — it’s the same income tax you owe, but paid in parts during the financial year instead of all at once after year-end. By aligning tax payments with your earnings, it spreads out your tax burden and avoids the pressure of a large one-time payment.

• Who Should Pay Advance Tax?

Advance tax applies to more than just businesses. It covers anyone with a taxable income where TDS (Tax Deducted at Source) is not sufficient to cover the total tax liability.

This includes:

1. Individuals – including salaried employees with additional income sources (like rental income, capital gains, or bank interest).
2. Self-Employed Professionals – such as doctors, lawyers, consultants, architects, and freelancers.
3. Businesses – including sole proprietorships, partnerships, LLPs, and other entities.
4. Companies – irrespective of turnover or profit levels.

Advance tax becomes mandatory when your total tax liability, after considering TDS/TCS, is ₹10,000 or more in a financial year.

• How to Calculate Advance Tax?

Here’s how you can determine whether and how much advance tax to pay:

1. Estimate your total income for the financial year (salary, rent, interest, capital gains, business or professional income, etc.).
2. Compute your tax liability using the correct slab or corporate rates.
3. Reduce TDS/TCS already deducted or expected to be deducted.
4. If the net tax payable is ₹10,000 or more, advance tax applies.
5. Pay the tax in installments based on the official due dates.

Tip: Review your estimates every quarter. If your income changes (e.g., selling property, earning higher business profits, or receiving a bonus), update your advance tax calculations accordingly.

• Due Dates for Advance Tax Payments:

For all taxpayers except those under presumptive taxation (Sections 44AD/44ADA):

Installment	Due Date	% of Tax Payable (Cumulative)
1st	15th June	15%
2nd	15th September	45%
3rd	15th December	75%
4th	15th March	100%

For Presumptive Taxation (Sections 44AD/44ADA): Only one installment is required — 100% of the tax liability by 15th March.

• How to Pay Advance Tax Online:

Advance tax payments are quick and convenient through the government-authorized channels:

1. Visit the NSDL/Income Tax e-Payment Portal.
2. Select Challan 280 (Payment of Income Tax).
3. Enter PAN, Assessment Year, type of payment (Advance Tax), and bank details.
4. Pay via net banking, debit card, or through an authorized bank branch.
5. Save the challan receipt — it’s needed while filing your ITR to claim tax credit.

• Penalties for Non-Payment or Underpayment of Advance Tax:

Failing to pay or underpaying advance tax attracts interest under:

1. Section 234B – for not paying at least 90% of the total tax liability before year-end.
2. Section 234C – for missing or delaying any advance tax installment.

These interests are charged monthly at 1%, increasing your overall tax cost unnecessarily.

• Benefits of Paying Advance Tax on Time:

Paying advance tax isn’t just about avoiding penalties — it’s smart tax management:

1. No Year-End Stress: Avoid large lump-sum payments at the end of the year.
2. Save on Interest: Avoid Sections 234B and 234C interest costs.
3. Stay Compliant: Meet legal requirements and reduce scrutiny.

• Common Mistakes to Avoid in Advance Tax:

Many taxpayers unintentionally go wrong while complying with advance tax. Common pitfalls include:

1. Overlooking non-salary income like rental income, fixed deposit interest, or capital gains.
2. Forgetting to adjust TDS/TCS already deducted, leading to overpayment.
3. Missing installment due dates, triggering unnecessary interest.
4. Not revising estimates when income changes during the year.

• Conclusion:

Advance tax is an essential compliance requirement under the Income Tax Act, 1961. By planning ahead, estimating income carefully, and paying tax in installments, taxpayers can reduce stress, avoid penalties, and contribute responsibly to the nation’s economy.

Whether you’re an individual, a professional, a business, or a company — timely payment of advance tax ensures smooth cash flow, legal compliance, and peace of mind throughout the year.