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INDEX
  • What is Advance Tax
  • Who Should Pay Advance Tax?
  • How is Advance Tax Calculated?
  • Why is Advance Tax Important?
  • Key Dates for Advance Tax Payments
  • Required Forms for Advance Tax
  • Interest on Late Payment of Advance Tax
 

Advance Tax

What is Advance Tax?

Advance tax is the income tax paid in installments throughout the year, rather than as a lump-sum payment at the end of the year. Also called “earn tax,” it is paid as per the due dates set by the Income Tax Department.

Who Should Pay Advance Tax?

Any taxpayer with an estimated tax liability of ₹10,000 or more in a financial year must pay advance tax. This includes:

  • Salaried Individuals: If their total tax liability exceeds ₹10,000, they must pay advance tax based on their income from employment.
  • Freelancers: Freelancers must pay advance tax if their total tax liability exceeds ₹10,000, based on their diverse sources of income.
  • Businesses: Companies must pay advance tax on the income generated through their business under the presumptive taxation scheme of Section 44AD.
  • Senior Citizens: Senior citizens earning business income are required to pay advance tax.
  • Self-Employed Professionals: Professionals such as doctors, lawyers, and architects who fall under the presumptive taxation scheme of Section 44ADA must pay advance tax.
How is Advance Tax Calculated?

Advance tax is calculated based on the estimated total income for the financial year. The following formula is used to arrive at the total tax liability:

  1. Income tax on estimated total income
  2. Subtract relief under Section 87A
  3. Add surcharge and education cess
  4. Subtract TDS and any other relief
  5. The result is the advance tax liability to be paid in installments.
Why is Advance Tax Important?

Advance tax allows taxpayers to pay their income tax as they earn throughout the year, rather than waiting until the end. It helps avoid a large tax burden at the year-end. Taxpayers must estimate their income and tax liability early to determine if advance tax payments are required.

Key Dates for Advance Tax Payments

For any FY  the advance tax payments should be made according to the following schedule:

  1. On or before June 15: Pay 15% of the total tax liability
  2. On or before September 15: Pay 45% of the total tax liability
  3. On or before December 15: Pay 75% of the total tax liability
  4. On or before March 15: Pay 100% of the total tax liability
Required Forms for Advance Tax

Taxpayers need to file Challan No. ITNS 280 for advance tax payment. When filling out this form, ensure the following:

  • PAN details are entered correctly
  • Assessment Year is selected for the upcoming financial year
  • Select the correct type of payment (advance tax or self-assessment tax)

Once the payment is made, a Challan Identification Number (CIN) will be generated. This number should be kept for reference when filing income tax returns.

Interest on Late Payment of Advance Tax

If advance tax is not paid on time, interest will be charged under sections 234B and 234C:

  • Interest under Section 234B: If less than 90% of taxes are paid through advance tax or TDS/TCS by March 31, interest will be charged at 1% per month on the unpaid amount.
  • Interest under Section 234C: Interest is charged if advance tax payments are less than the specified percentage on the due dates:
    • If less than 15% is paid by June 15: 1% per month for 3 months
    • If less than 45% is paid by September 15: 1% per month for 3 months
    • If less than 75% is paid by December 15: 1% per month for 3 months
    • If less than 100% is paid by March 15: 1% per month for 1 month
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