Advance Tax September Installment (FY 2024-25): Who Should Pay and How Much

The second deadline for advance tax payment for the Financial Year 2024-25 is just around the corner on September 15th. Are you prepared? Advance tax, as the name suggests, is the income tax paid in advance for the income earned in a particular financial year, rather than as a lump sum at the year’s end. This ‘pay-as-you-earn’ system is mandated by the Income Tax Department of India to ensure a steady flow of revenue for the government and to make tax payments more manageable for taxpayers. Staying on top of these deadlines is crucial for managing your cash flow effectively, avoiding last-minute financial stress, and steering clear of hefty interest penalties. Understanding and Managing Advance Tax Payments is essential for all taxpayers. This comprehensive guide will walk you through everything you need to know about the advance tax September installment, from determining your eligibility to navigating the online payment process.

What is Advance Tax and Why is it Important?

Think of advance tax as paying your income tax in installments throughout the year as you earn your income, instead of waiting until the end of the year to pay a large, single amount. This system applies to all income you earn during the financial year, including salary, business profits, capital gains, rental income, and interest. The core idea behind this is to ease the burden on taxpayers. Instead of facing a significant financial outflow in one go, you can spread your tax liability across four quarterly payments.

The primary benefit of this system is that it helps you stay compliant with the advance tax payment rules India and promotes better financial discipline. By planning for and paying your taxes in advance, you avoid the shock of a huge tax bill when you file your returns. It ensures that you are consistently meeting your tax obligations, which prevents the accumulation of interest penalties for non-payment or underpayment. For the government, it ensures a regular stream of income to fund public services and expenditure throughout the year.

Who Should Pay Advance Tax in India for FY 2024-25?

The core rule for advance tax is straightforward. Any individual, whether salaried, a freelancer, or a business owner, whose estimated total tax liability for the financial year is ₹10,000 or more is required to pay advance tax. This is the fundamental criterion that determines who should pay advance tax in India. If your calculated tax liability, after accounting for any Tax Deducted at Source (TDS), is less than ₹10,000, you are not required to pay advance tax. However, it’s always wise to estimate your income and tax liability early in the financial year to see if you fall into this category.

For Salaried Individuals

A common misconception among salaried individuals is that since their employer deducts TDS from their salary, they are exempt from paying advance tax. This is not always true. While TDS covers the tax on your salary income, it doesn’t account for income you might earn from other sources. A salaried person must pay advance tax in several scenarios:

• Significant Income from Other Sources: If you earn substantial income from sources like house rent, interest on fixed deposits, dividends from stocks or mutual funds, or capital gains from selling property or shares, the TDS on your salary might not be sufficient to cover the total tax liability.
• Switched Jobs During the Year: If you changed jobs, your new employer might not have considered your previous salary for TDS calculation. This can lead to a shortfall in the total tax deducted for the year.
• Moonlighting or Freelance Income: If you have a side hustle, freelance project, or any part-time work alongside your full-time job, this additional income is not covered by your employer’s TDS, making the September advance tax payment for salaried employees a necessary compliance step.

For Freelancers and Business Owners

For freelancers, consultants, professionals, and small business owners, paying advance tax is generally mandatory. Since they do not have an employer to deduct tax at source (TDS) from their income, the responsibility of estimating their annual income and paying tax on it throughout the year falls squarely on their shoulders. This applies to professionals like doctors, lawyers, architects, and consultants, as well as all business owners, whether operating as a sole proprietorship or a partnership firm.

It’s also important to note the rules for taxpayers who have opted for the Presumptive Taxation Scheme under Section 44AD or 44ADA. While they are also required to pay advance tax if their liability exceeds ₹10,000, the rules are slightly different for them. They are required to pay their entire advance tax amount in a single installment on or before March 15th of the financial year. Understanding this distinction is crucial to avoid any confusion and ensure correct compliance.

Who is Exempt from Paying Advance Tax?

There is one key exemption from the requirement to pay advance tax. A resident senior citizen (an individual who is 60 years of age or older) is not required to pay advance tax, provided they do not have any income from a business or profession. If a senior citizen’s income comes only from sources like pension, interest, rental income, or capital gains, they are exempt from the advance tax provisions and can pay their full tax liability while filing their income tax return.

Key Advance Tax Due Dates 2024-25

The Income Tax Act has laid out a clear schedule for advance tax payments, spreading the liability across four installments. Meeting these deadlines is critical to avoid interest penalties. For the Financial Year 2024-25 (Assessment Year 2025-26), it’s essential to keep these advance tax due dates 2024-25 in your calendar. The upcoming deadline of September 15th is particularly important as it marks the point where you should have paid almost half of your estimated annual tax.

Due Date	Installment	Percentage of Tax Payable
On or before June 15, 2024	First Installment	Not less than 15% of advance tax
On or before Sep 15, 2024	Second Installment	Not less than 45% of advance tax
On or before Dec 15, 2024	Third Installment	Not less than 75% of advance tax
On or before Mar 15, 2025	Fourth Installment	100% of advance tax

How to Calculate Your Advance Tax September Installment

The calculation for the second installment is cumulative. By September 15th, 2024, you must ensure that at least 45% of your total estimated tax liability for the entire financial year has been paid. If you have already paid the first installment in June, you subtract that amount to determine what you owe now. The calculation process involves a few straightforward steps.

Step 1: Estimate Your Total Annual Income

First, you need to make a realistic estimation of your total income from all possible sources for the entire financial year (from April 1, 2024, to March 31, 2025). This isn’t just a guess; it should be based on your current earnings, expected increments, and any anticipated income. Be sure to include:

• Salary income (after the standard deduction of ₹50,000)
• Income from your business or profession
• Rental income from any property you own
• Capital gains from the sale of stocks, mutual funds, or property
• Interest income from savings accounts, fixed deposits (FDs), etc.
• Any other income, such as dividends or freelance earnings.

Step 2: Subtract Deductions

Once you have your total estimated income, the next step is to subtract all the deductions you are eligible for and plan to claim. These deductions help reduce your taxable income. Common deductions under Chapter VI-A of the Income Tax Act include:

• Section 80C: Investments in PPF, EPF, ELSS, life insurance premiums, home loan principal repayment, etc. (up to ₹1.5 lakh).
• Section 80D: Premiums paid for health insurance for yourself, your family, and your parents.
• Section 80G: Donations made to eligible charitable institutions.
• Section 80TTA: Interest earned from a savings bank account (up to ₹10,000).

Your Taxable Income = Total Estimated Income – Total Deductions.

Step 3: Calculate Total Tax Liability

Now, apply the applicable income tax slab rates for the current Financial Year 2024-25 to your estimated taxable income. You must decide whether you will opt for the Old Tax Regime (which allows for various deductions and exemptions) or the New Tax Regime (which offers lower slab rates but forgoes most deductions). The decision between the Old vs New Tax Regime: Which is Better for Salaried Individuals in 2025? can significantly impact your final tax outgo. After calculating the base tax, add the mandatory 4% Health and Education Cess to this amount.

Your Gross Tax Liability = (Tax Calculated as per Slabs) + (4% Cess).

Step 4: Deduct TDS/TCS

From your gross tax liability, you must subtract any Tax Deducted at Source (TDS) or Tax Collected at Source (TCS) that has already been deducted or is expected to be deducted during the financial year. For salaried individuals, this is the TDS your employer will deduct. For freelancers, this could be the TDS deducted by clients on your payments.

Your Net Tax Liability (Advance Tax Payable) = Gross Tax Liability – Total TDS/TCS.

Step 5: Calculate the September Installment Amount

If your Net Tax Liability is ₹10,000 or more, you need to pay advance tax. For the second installment, the formula is:

Amount for September Installment = (45% of Net Tax Liability) – Advance Tax already paid in June

Example for a Freelancer:
Let’s say a freelance consultant estimates her total income and calculates her tax liability as follows:

• Estimated Annual Professional Receipts: ₹22,00,000
• Estimated Deductions (80C, 80D): ₹2,00,000
• Taxable Income: ₹20,00,000
• Tax Calculation (under New Regime): ₹3,00,000
• Add 4% Cess: ₹12,000
• Gross Tax Liability: ₹3,12,000
• TDS deducted by clients (estimated @10%): ₹2,20,000
• Net Advance Tax Liability: ₹3,12,000 – ₹2,20,000 = ₹92,000

• Total Advance Tax to be paid by Sep 15th (45%): 45% of ₹92,000 = ₹41,400
• Advance Tax already paid in June (15%): 15% of ₹92,000 = ₹13,800
• September Installment Due: ₹41,400 – ₹13,800 = ₹27,600

Example for a Salaried Person with Other Income:
Here is an advance tax calculation for salaried individuals who also have rental income:

• Salary Income (after standard deduction): ₹15,00,000
• Rental Income: ₹4,00,000
• Total Gross Income: ₹19,00,000
• Deductions (80C – Home Loan Principal, PPF): ₹1,50,000
• Taxable Income: ₹17,50,000
• Tax Calculation (under Old Regime): ₹3,37,500
• Add 4% Cess: ₹13,500
• Gross Tax Liability: ₹3,51,000
• TDS by employer on salary (estimated): ₹2,55,000
• Net Advance Tax Liability: ₹3,51,000 – ₹2,55,000 = ₹96,000

• Total Advance Tax to be paid by Sep 15th (45%): 45% of ₹96,000 = ₹43,200
• Advance Tax already paid in June (15%): 15% of ₹96,000 = ₹14,400
• September Installment Due: ₹43,200 – ₹14,400 = ₹28,800

A Step-by-Step Advance Tax Payment Guide India

Paying your advance tax online is a simple and convenient process. The government’s e-filing portal has streamlined this procedure. Here is how you can make your payment.

How to Pay Advance Tax Online (Challan 280)

1. Visit the official Income Tax e-filing portal: https://www.incometax.gov.in/iec/foportal/
2. On the left-hand side menu or dashboard, find and click on the ‘e-Pay Tax’ service.
3. On the e-Pay Tax page, click on the ‘+ New Payment’ button to initiate a new tax payment.
4. You will see several tax payment tiles. Select the first box for ‘Income Tax’ and click ‘Proceed’.
5. Now, you need to fill in the challan details. Choose the Assessment Year (AY) as 2025-26 (which corresponds to the Financial Year 2024-25) and the Type of Payment as (100) Advance Tax.
6. After filling in the details accurately, click ‘Continue’.
7. Enter the tax amount you need to pay in the designated fields and proceed.
8. You will be redirected to the payment gateway. Choose your preferred mode of payment from the available options (Net Banking, Debit Card, UPI, RTGS/NEFT, or Payment Gateway).
9. Crucial Step: Once the payment is successful, a challan receipt will be generated. Download this challan immediately. It contains vital information like the BSR code, challan serial number (CIN), and the date of payment, which you will need when filing your Income Tax Return (ITR).

What Happens if You Miss the Advance Tax Deadline?

Failing to pay your advance tax on time or underpaying it can lead to penal interest levied by the Income Tax Department. These penalties are calculated under two different sections of the Income Tax Act. For a detailed breakdown of these penalties, you can refer to our guide on Section 234A, 234B, 234C: Interest Penalties for Default in Tax Payments.

• Interest under Section 234C: This interest is charged for the deferment or delay in paying individual installments. If you fail to pay the required 45% of your tax liability by September 15th, simple interest at 1% per month will be charged on the shortfall amount for a period of 3 months.
• Interest under Section 234B: This interest is levied if you have not paid at least 90% of your total assessed tax as advance tax by the end of the financial year (March 31st). If there is a shortfall, simple interest at 1% per month is charged on the unpaid amount from the beginning of the next financial year until the date the tax is fully paid.

Conclusion: Stay Compliant and Avoid Penalties

Understanding and complying with advance tax regulations is a sign of a diligent taxpayer. It not only keeps you on the right side of the law but also helps you manage your finances more effectively throughout the year. Remember these key takeaways:

• Advance tax is mandatory for any taxpayer whose estimated tax liability for the year exceeds ₹10,000.
• The second installment deadline is September 15th, and you must ensure that at least 45% of your total estimated tax has been paid by this date.
• Accurate estimation of your income and calculation of your tax liability are crucial to avoid underpayment and the resulting interest penalties.

Paying your advance tax September installment on time is a critical step towards responsible financial management and stress-free tax compliance.

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Frequently Asked Questions (FAQs)

1. I am a salaried person and my employer already deducts TDS. Do I still need to worry about the September advance tax payment for salaried employees?

Yes, you might need to. If you have significant income from other sources like rent, capital gains, large interest deposits, or freelance work, your employer’s TDS on your salary alone may not be sufficient to cover your total tax liability for the year. If the tax shortfall (total tax minus TDS) is more than ₹10,000, you are required to pay advance tax.

2. What is the Assessment Year (AY) I should select for paying advance tax for FY 2024-25?

For income earned during the Financial Year (FY) 2024-25 (i.e., from April 1, 2024, to March 31, 2025), the corresponding Assessment Year (AY) is 2025-26. You must select AY 2025-26 when filling out Challan 280 to pay your advance tax.

3. I miscalculated and paid excess advance tax in the first installment. Can I adjust it?

Yes, you can. If you have paid more than the required 15% in the first installment, you can adjust this excess amount against the tax due for the advance tax September installment. Your goal is to ensure that the cumulative tax paid by September 15th is at least 45% of your total estimated tax liability. You can similarly adjust any excess in subsequent installments.

4. Can I revise my advance tax payment if my income changes later in the year?

Absolutely. Advance tax is based on an estimation of your income. If your income increases or decreases unexpectedly later in the financial year (for example, due to unforeseen capital gains or a change in business profit), you can revise your estimated income and tax liability. You can then adjust the amount you pay in the subsequent installments in December and March to reflect this change.