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TogglePaying the tax dues in advance over the financial year is better than leaving it for the last minute, which can be stressful. Calculating the tax liability and paying it is a cumbersome process and being regular with payments can help avoid the rush at the end of the financial year.
When you pay the income tax in advance instead of paying a lump sum at the end of the year, it is known as an advance tax payment. It is a kind of ‘pay tax as you earn’ and the payments are made in instalments on or before the due dates as determined by the Income Tax Department.
As the name indicates, it refers to paying a part of your income tax liability before the end of the financial year. You may make an advance payment if your tax liability for a financial year exceeds INR 10,000.
Generally, paying tax in advance is applicable if you earn income other than salary, which includes but is not limited to income from rent, capital gains, lottery winnings, fixed deposits, and much more.
The tax should be paid in the same financial year during which the income is earned.
To calculate the tax liability, you may follow these steps:
If the tax liability based on the above calculation exceeds INR 10,000, you need to pay the tax in advance.
Advance Tax Installment = (Estimated Total Tax Liability) / 4
Estimate Your Total Income: Add up all your income sources for the financial year.
Deduct Allowable Expenses: Subtract any eligible deductions from your total income.
Calculate Taxable Income: Determine your taxable income by subtracting exemptions from your adjusted total income.
Apply Tax Rates: Use the applicable tax slabs to calculate the tax payable on your taxable income.
Consider Surcharges and Cess: Add any surcharges or cess levied on your tax amount.
Estimate Total Tax Liability: Determine your estimated total tax liability for the financial year.
Calculate Installments: Divide your estimated total tax liability by 4 to get the amount for each installment.
Example:
If your estimated total tax liability for the financial year is ₹50,000, then each advance tax installment would be:
Advance Tax Installment = ₹50,000 / 4 = ₹12,500
Note, this is a very simplistic way of calculating advance tax. Do check appropriate calculations, provisions, and applicable deductions.
Alternatively, you can use an online calculator to determine the advance income tax amount. To calculate the estimated tax liability, input your details, such as name, residential status, taxable income, age, TDS on salary, and financial year for which you are making the advance payment.
Based on this information, the online calculator will provide the tax liability for the given financial year.
If your income tax liability for a financial year is INR 10,000 or more, you are liable to pay advance income tax. However, if you are older than 60 years and do not have any business income, you are exempt from paying tax in advance.
Professionals like lawyers, medical practitioners, architects, and others come under the presumptive scheme under Section 44ADA of the Income Tax Act, 1961.
You need to pay the tax in advance as a single instalment on or before 15th March. Alternatively, you may pay the income tax before 31st March of the financial year.
If you have opted for the presumptive tax scheme under section 44AD of the Income Tax Act, 1961, you must pay the entire tax in advance on or before 15th March.
You can also pay the total tax liability before 31st March of the financial year.
The due dates to pay advance tax if you are self-employed or a businessperson are as follows:
Due date | Amount payable |
On or before 15th June | Minimum 15% of the amount payable as tax in advance |
On or before 15th September | Minimum 45% of the amount payable as tax in advance |
On or before 15th December | Minimum 75% of the amount payable as tax in advance |
On or before 15th March | 100% of the tax liability |
Due date | Amount payable |
On or before 15th June | Minimum 15% of the amount payable as tax in advance |
On or before 15th September | Minimum 45% of the amount payable as tax in advance |
On or before 15th December | Minimum 75% of the amount payable as tax in advance |
On or before 15th March | 100% of the tax liability |
You can pay advance tax online by following the below-mentioned steps:
You will receive the details and the challan number once the payment is successfully completed.
You can also pay the income tax as advance tax at any of the branches of authorized banks. Fill in the details, check the relevant boxes on the form, and submit it along with challan 280 and the tax payment (as cash or check).
Moreover, ensure you take the receipt for the advance payment before leaving the counter.
Some of the banks that are authorized to collect such tax payments include:
Axis Bank | HDFC Bank | ICICI Bank |
Punjab National Bank | Reserve Bank of India | State Bank of India |
Syndicate Bank |
During the financial year, if you make excess tax payments exceeding the mandatory limits, the Income Tax Department will refund the additional amount.
In addition to the extra amount, the department pays 6% per annum as interest for any payments that are more than 10% of the mandatory limits. The refund is directly credited to your registered bank account.
At the end of the financial year, if the Income Tax Department assesses that you have paid the extra tax, the excess amount will be refunded.
To claim the refund, you will have to complete Form 30 and submit it to the relevant authority. The claim must be filed within one year from the last date of the assessment year.
Failing to pay the tax in advance can attract a fine. If you miss the deadline or pay less than the required amount, a simple interest of 1% is levied on the balance tax amount.
The interest is applicable until you pay the outstanding tax amount in full. The tax in advance must be paid once every quarter during a financial year.
If you fail to pay your advance tax by the due date, you will be charged a penalty of 1% per month for the first three months of delay. This penalty is calculated on the outstanding tax amount.
Important points to remember:
If your annual tax liability after TDS is INR 10,000 or more, you must pay advance income tax online or offline.
NRIs with accrued income exceeding INR 10,000 for a financial year are liable to pay income tax in advance.
You can pay the income tax in advance either online via the official website of TIN or by submitting challan 280 at any branch of an authorized bank.
Yes, you can consider the available tax benefits under section 80C of the Income Tax Act, 1961 to calculate your taxable income for the financial year before determining any advance income tax liability.
Yes, all taxes paid until 31st March of a financial year are considered advance income tax payments.