Advance tax is a tax payment method requiring individuals and businesses to pay taxes on earned income throughout the year, rather than a single payment at year-end. This system helps manage tax obligations regularly, avoiding large payments at the financial year's close. Applicable on incomes such as salaries, rentals, capital gains, lottery winnings, fixed deposits, etc.

Advance Tax Payment Due Dates for FY 2024-25

Payments are made in four installments across the financial year:

• First Installment: On or before 15th June 2024 - 15% of the total advance tax.
• Second Installment: On or before 15th September 2024 - 45% of total advance tax minus the amount paid by June 15.
• Third Installment: On or before 15th December 2024 - 75% of total advance tax minus the amount paid by September 15.
• Fourth Installment: On or before 15th March 2025 - 100% of total advance tax minus the amount paid by December 15.

For taxpayers using the Presumptive Taxation Scheme under sections 44AD and 44ADA, the full payment is due by 15th March 2025.

Understanding Advance Tax

Advance tax is about paying income tax as you earn, helping distribute tax load over the year and preventing financial strain at the end. It ensures compliance and reduces burden through timely payments.

Who is Required to Pay Advance Tax?

Salaried Individuals, Freelancers, and Businesses: Advance tax applies if the total tax liability exceeds ₹10,000 in a financial year, covering all such entities.

Senior Citizens: Individuals aged 60+ without business income aren't required to pay advance tax, unless they have business income.

Presumptive Taxation for Enterprises: Those under section 44AD must pay full advance tax by 15th March, though they can opt for a 31st March settlement.

Presumptive Taxation for Professionals: Professionals under section 44ADA also need to complete their advance tax by 15th March, with an option to settle by 31st March.

Steps to Pay Advance Tax Online

1. Access Income Tax e-Filing Portal: Visit India’s Income Tax Department’s portal.
2. e-Pay Tax: Choose 'e-Pay Tax' from 'Quick Links' on the home page or use the search bar.
3. Provide PAN and Mobile Number: Enter and confirm your PAN along with your mobile number, then click 'Continue.'
4. OTP Verification: Enter OTP received on your mobile and proceed by clicking 'Continue.'
5. Payment Selection: Select 'Income Tax' as your tax type and hit 'Proceed.'
6. Choose Assessment Year: Pick the Assessment Year as 2025-26 and 'Advance Tax (100)' as Payment Type and continue.
7. Detail Entry and Payment Method: Fill the tax details, choose your payment method and bank, and click 'Continue.'
8. Preview and Pay: Review challan, select ‘Pay Now’ to finalize payment. Edit if necessary.
9. Save Receipt: Post payment, an acknowledgment appears. Note BSR code and challan serial number for future reference.

Interest on Late Advance Tax Payments

Delayed advance tax payments attract interest under:

• Section 234B: Failure to pay at least 90% of total tax liability incurs 1% interest monthly on unpaid sums.
• Section 234C: Missing installments also incur 1% monthly interest on shortfalls:
• By June 15 less than 15%: 1% for 3 months.
• By September 15 less than 45%: 1% for 3 months.
• By December 15 less than 75%: 1% for 3 months.
• By March 15 less than 100%: 1% for 1 month.

Advance Tax Calculation Methodology

1. Estimate Total Income: Calculate anticipated yearly income including gains, rentals, professional and salary incomes.
2. Apply Deductions: Subtract deductions under sections 80C, 80D, etc., from the gross income.
3. Compute Tax Payable: Determine tax owed using current tax slabs.
4. Subtract TDS: Deduct TDS already deducted or anticipated.
5. If post-TDS tax exceeds ₹10,000, advance tax becomes mandatory.

Illustrative Calculation of Advance Tax

Consider Ajay, a freelancer in interior decoration, with projected annual receipts of ₹20,00,000 for FY 2024-25 and estimated expenses of ₹12,00,000. Ajay’s investments include ₹40,000 in PPF, ₹25,000 in LIC premiums, and ₹12,000 for medical insurance, with TDS of ₹30,000 expected.

Ajay’s Advance Tax Computation:

• Income Estimate:
• Profession Earnings:
• Gross receipts: ₹20,00,000
• Less expenses: ₹12,00,000
• Net income: ₹8,00,000
• Other Income Source:
• Interest from FDs: ₹10,000
• Gross Total Income: ₹8,10,000
• Applicable Deductions:
• Section 80C (PPF + LIC): ₹65,000
• Section 80D (Insurance): ₹12,000
• Total Deductions: ₹77,000
• Net Taxable Income: ₹7,33,000
• Tax Liability:
• Tax Payable: ₹59,100
• Education Cess (4%): ₹2,364
• Total Tax Due: ₹61,464
• Less TDS: ₹30,000
• Advance Tax Due: ₹31,464
• Advance Tax Payment Schedule:
• 15th June: 15% of Advance Tax: ₹4,700
• 15th September: 45% of Advance Tax (less June payment): ₹9,400
• 15th December: 75% of Advance Tax (less Sept payment): ₹9,400
• 15th March: 100% of Advance Tax (less Dec payment): ₹7,900

This example uses the old tax regime for deductions under section 80C. If post-TDS and tax deductions, net liability is below ₹10,000, advance tax isn’t obligatory.

Tax Obligations or Refunds

Advance tax aims at diminishing the tax load at the end of the fiscal year by distributing payments evenly. Adjusting advance tax, TDS, and any tax at source might lead either to repayable tax or refundable tax, depending on overall payments and liabilities.

Related Topics:

• Understanding Income Tax Slabs and Rates
• How to File Your Income Tax Return Online
• Tax Benefits of Various Investment Options

This comprehensive guide helps in understanding advance tax processes, ensuring compliance, and minimizing potential penalties or interest from late payments.