Advance tax is a crucial aspect of India’s taxation system, requiring taxpayers to pay their taxes in installments before the financial year ends. This system ensures a continuous flow of revenue for the government while helping individuals and businesses manage their tax liabilities efficiently.
What is Advance Tax?
Advance tax, also known as “pay-as-you-earn” tax, is the income tax that individuals, businesses, and corporates must pay in installments, rather than in a lump sum at the end of the financial year. It applies to those whose tax liability exceeds ₹10,000 after adjusting for Tax Deducted at Source (TDS).
Who Needs to Pay Advance Tax?
Advance tax is applicable to:
- Salaried individuals with other sources of income such as capital gains, rent, or business income exceeding ₹10,000 after TDS deductions.
- Freelancers and self-employed individuals who have a tax liability above ₹10,000.
- Businesses and corporates with a taxable income above ₹10,000.
- Non-Resident Indians (NRIs) earning taxable income in India above ₹10,000 after TDS.
Advance Tax Payment Schedule
The tax must be paid in four installments throughout the financial year, as follows:
| Due Date | Advance Tax Payable |
|---|---|
| 15th June | 15% of total tax liability |
| 15th September | 45% of total tax liability |
| 15th December | 75% of total tax liability |
| 15th March | 100% of total tax liability |
For taxpayers opting for Presumptive Taxation Scheme (small businesses and professionals under Section 44AD & 44ADA), the entire amount must be paid by 15th March.
How to Calculate Advance Tax
To calculate your advance tax liability:
- Estimate your total income for the financial year.
- Deduct eligible exemptions such as Section 80C (LIC, PPF, EPF), 80D (Health Insurance), and other deductions.
- Compute your taxable income based on applicable tax slabs.
- Deduct TDS already deducted by employers or other sources.
- Pay advance tax on the remaining amount if it exceeds ₹10,000.
How to Pay Advance Tax Online
You can pay advance tax online through the Income Tax Department’s e-Payment portal:
- Visit https://www.incometax.gov.in
- Click on ‘e-Pay Tax’
- Select Challan 280 and enter required details.
- Choose the correct assessment year.
- Make payment through Net Banking, Debit Card, or UPI.
- Download the tax receipt for future reference.
Penalty for Non-Payment or Late Payment
If a taxpayer fails to pay advance tax or pays an insufficient amount, interest is charged under Sections 234B and 234C:
- Section 234B: Interest of 1% per month if 90% of the tax is not paid before March 31.
- Section 234C: Interest of 1% per month for deferment of advance tax installments.
Recent News on Advance Tax and Tax Disputes (March 2025)
Several high-profile tax disputes have recently made headlines:
- Kia Motors India: Contested a ₹116 crore tax demand over trade treaty exemptions.
- Volkswagen’s Skoda Auto: Facing a ₹11,600 crore tax notice for allegedly misclassifying car imports.
- Calls for Wealth Tax: French economist Thomas Piketty suggested imposing a 2% wealth tax on India’s ultra-rich.
These cases highlight India’s complex taxation landscape, emphasizing the need for compliance and expert tax planning.
Government Initiatives & Expert Opinions
- The government is working to simplify tax compliance to boost the ease of doing business.
- Experts recommend using tax planning strategies such as maximizing deductions under 80C, 80D, 80E, and capital gains exemptions.
- Small businesses and freelancers should consult professionals to avoid penalties and ensure accurate tax filings.
Conclusion
Advance tax is an essential component of financial planning for individuals and businesses. By understanding who needs to pay, how to calculate, and the penalties for non-payment, taxpayers can efficiently manage their tax liabilities. Keeping up with recent tax developments ensures compliance and minimizes legal risks.
