A Complete Guide to Calculating and Paying Advance Tax in India

The end of the financial year often brings a wave of tax-filing stress for many individuals and business owners. But what if you could manage your tax liability throughout the year and avoid a huge payout in March? This is precisely where advance tax comes in. This guide will provide a detailed breakdown of how to calculate advance tax, helping you stay compliant and financially prepared. Advance tax is a ‘pay-as-you-earn’ system mandated by the Income Tax Act, where you pay your income tax in instalments during the financial year instead of a single lump sum at the end. Correctly paying advance tax is not just a good financial practice; it is a mandatory requirement for certain taxpayers. Failing to do so can attract interest penalties under sections 234B and 234C of the Income Tax Act. This comprehensive guide will break down who needs to pay it, how to calculate it, the important due dates, and the correct online payment process.

Who is Liable to Pay Advance Tax?

Understanding whether you fall under the ambit of advance tax is the first crucial step. The rules are designed to cover individuals and businesses whose income isn’t fully subject to Tax Deducted at Source (TDS) or whose tax liability for the year is significant. The general rule is straightforward: if your total estimated tax liability for the financial year is ₹10,000 or more, you are required to pay advance tax. This applies to various categories of taxpayers, including salaried individuals with other sources of income, freelancers, professionals, and business owners. The Income Tax Department has laid out specific guidelines to ensure that taxes are collected progressively throughout the year, mirroring the income-earning pattern of the taxpayer.

Advance Tax for Salaried Individuals

Many salaried individuals believe that their tax obligations are fully handled by their employer through TDS. While this is true for salary income, the requirement for paying advance tax for salaried individuals arises when they have significant income from other sources. If the tax payable on this additional income, after accounting for any TDS already deducted, exceeds ₹10,000, they must pay advance tax. This is a common scenario that is often overlooked, leading to interest penalties later.

Examples of other income that can trigger advance tax liability include:

• Rental income from a house property.
• Capital gains from the sale of shares, mutual funds, or real estate.
• Interest income from fixed deposits, recurring deposits, or savings accounts.
• Dividend income from stocks or mutual funds.
• Income from freelancing or a side business.

For Business Owners, Freelancers, and Professionals

For those who are self-employed, the rules are more direct. Any individual running a business or practising a profession—such as a doctor, lawyer, consultant, architect, or freelancer—is required to estimate their annual income and pay advance tax if their total tax liability for the year is ₹10,000 or more. Since their income is not subject to a regular TDS mechanism like a salary, the ‘pay-as-you-earn’ system of advance tax is the primary method for them to fulfil their tax obligations during the financial year itself. This proactive approach helps in managing cash flow and prevents a large, unexpected tax bill at the time of filing the return.

Who is Exempted from Paying Advance Tax?

The Income Tax Act provides a specific exemption to relieve certain taxpayers from the hassle of advance tax compliance. A resident senior citizen (an individual aged 60 years or more during the financial year) is not required to pay advance tax, provided they do not have any income chargeable under the head “Profits and gains of business or profession.” This means if a senior citizen’s income consists only of a pension, interest, rent, or capital gains, they are exempt from paying advance tax and can pay their entire tax liability through self-assessment tax before filing their return.

How to Calculate Advance Tax: A Step-by-Step Guide

The core of advance tax compliance lies in the accurate estimation of your tax liability for the year. This calculation needs to be done with care to avoid underpayment, which can lead to interest penalties. The process involves estimating your annual income, claiming eligible deductions, calculating tax based on the applicable slab rates, and finally adjusting for any TDS that has already been paid. Following this structured approach is key to understanding how to calculate advance tax under the Income Tax Act. Here is a simple, step-by-step process to guide you.

Step 1: Estimate Your Total Annual Income

First, you need to project your total income for the entire financial year (from April 1st to March 31st). This isn’t just about one income source; you must consolidate earnings from every possible avenue. Be realistic and use your current earnings, expected increments, and investment returns to create a comprehensive estimate.

Your total income includes:

• Income from Salary: Your gross salary, including any bonuses or arrears you expect to receive.
• Income from House Property: Any rental income received, after deducting property tax and the standard deduction.
• Profits and Gains from Business or Profession: Your projected net profit for the year.
• Capital Gains: Any gains you anticipate from selling assets like stocks, mutual funds, or property.
• Income from Other Sources: This includes interest from bank deposits, dividends, lottery winnings, or any other income that doesn’t fit into the above categories.

Step 2: Account for Applicable Deductions

Once you have an estimate of your gross total income, the next step is to reduce it by claiming all the deductions you are eligible for. These deductions help lower your taxable income, thereby reducing your overall tax liability. It is important to consider all potential investments and expenses that qualify for tax benefits under the Income Tax Act.

Key deductions to consider include:

• Standard Deduction: A flat deduction of ₹50,000 is available for salaried individuals and pensioners.
• Deductions under Chapter VI-A: This is a broad category that includes popular deductions such as:
  • Section 80C: Investments in EPF, PPF, life insurance premiums, ELSS, etc. (up to ₹1.5 lakh).
  • Section 80D: Premiums for health insurance for self, family, and parents.
  • Section 80G: Donations to specified funds and charities.
  • Section 80TTA: Interest on savings bank accounts (up to ₹10,000).

Subtracting these deductions from your gross total income will give you your ‘Net Taxable Income’.

Step 3: Calculate Your Gross Tax Liability

With your ‘Net Taxable Income’ determined, you can now calculate your tax liability. This step is crucial and depends on which tax regime you have chosen for the financial year. The government offers two options: the Old Tax Regime (with various deductions and exemptions) and the New Tax Regime (with lower slab rates but fewer deductions). You must apply the latest income tax slab rates corresponding to your chosen regime and age group to your taxable income. After calculating the base income tax, you must add a 4% Health and Education Cess to this amount to arrive at your gross tax liability for the year.

Step 4: Subtract TDS/TCS

The advance tax you need to pay is the final tax due after accounting for taxes that have already been paid on your behalf during the year. This is primarily done through Decoding TDS: Tax Deducted at Source Explained (TDS) or Tax Collected at Source (TCS). For salaried individuals, their employer deducts TDS from their monthly salary. Similarly, TDS may be deducted on interest income from banks, rental income, or professional fees. You should subtract the total estimated TDS/TCS for the financial year from the gross tax liability calculated in the previous step. This is a critical adjustment in the process to calculate advance tax in India.

Step 5: Determine Your Final Advance Tax Liability

The amount you arrive at after subtracting TDS/TCS from your gross tax liability is your net advance tax payable for the year.

Final Advance Tax Liability = (Gross Tax Liability) – (Total TDS/TCS)

If this final amount is ₹10,000 or more, you are required to pay it in instalments as per the due dates prescribed by the Income Tax Act. If it is less than ₹10,000, you do not need to pay advance tax.

Advance Tax Due Dates & Instalment Percentages (FY 2024-25)

Paying your calculated advance tax on time is just as important as the calculation itself. The Income Tax Department has specified quarterly due dates and the minimum percentage of the total liability that must be paid with each instalment. Missing these deadlines or underpaying an instalment can lead to interest penalties.

For All Taxpayers (except those under Presumptive Scheme)

For individuals, HUFs, and businesses not opting for the presumptive taxation scheme, the advance tax must be paid in four instalments.

Due Date	Amount Payable
On or before 15th June 2024	Not less than 15% of advance tax
On or before 15th September 2024	Not less than 45% of advance tax
On or before 15th December 2024	Not less than 75% of advance tax
On or before 15th March 2025	100% of advance tax

Note: The amounts are cumulative. For example, by September 15th, your total payments for the year should be at least 45% of your total liability.

For Taxpayers Opting for Presumptive Taxation Scheme (Sec 44AD/44ADA)

The rules are simplified for small business owners and professionals who opt for the Section 44AD: Presumptive Taxation Scheme for Small Businesses or Section 44ADA. Under this scheme, they are not required to pay tax in quarterly instalments. Instead, they can pay their entire advance tax liability in a single instalment on or before 15th March 2025. This makes compliance much easier for them.

The Online Advance Tax Payment Process India

The government has made the advance tax payment process India simple and convenient through its online portal. You can pay your tax from the comfort of your home or office using various digital payment methods.

Here’s how to do it:

1. Visit the e-Filing Portal: Go to the official Income Tax Department’s e-Pay Tax service page: e-Pay Tax Service.
2. Enter PAN Details: Enter your PAN and your mobile number. You will receive an OTP for verification. Enter the OTP to proceed.
3. Select Payment Category: You will be shown different tax payment categories. Under the “Income Tax” box, click the ‘Proceed’ button.
4. Choose Assessment Year and Payment Type:
   • Assessment Year (AY): For the income earned during the Financial Year 2024-25, you must select the corresponding Assessment Year, which is 2025-26.
   • Type of Payment (Minor Head): From the dropdown menu, select (100) Advance Tax.
5. Enter Tax Amount: In the tax details section, enter the amount of the advance tax instalment you are paying.
6. Select Payment Method: Choose your preferred payment method from the available options, such as Net Banking, Debit Card, UPI, or Pay at Bank Counter.
7. Download Challan Receipt: After you complete the payment successfully, a challan receipt (Form CRN) will be generated. This receipt contains the BSR code and challan serial number. Download and save this challan as it is the official proof of your tax payment.

Consequences of Not Paying Advance Tax

Ignoring your advance tax liability can be a costly mistake. The Income Tax Act imposes Section 234A, 234B, 234C: Interest Penalties for Default in Tax Payments for non-payment or short-payment of advance tax, which are calculated at the time of processing your income tax return.

Interest under Section 234B

This interest is levied for default in payment of advance tax. If you have not paid any advance tax, or if the total advance tax you paid is less than 90% of your assessed tax liability, you will be charged interest under Section 234B. The interest is calculated at 1% per month or part of a month on the deficit amount, from April 1st of the assessment year until the date of determination of total income.

Interest under Section 234C

This interest is levied for the deferment or short payment of individual instalments. If you fail to pay the required percentage of tax by the quarterly due dates, you will be charged interest under Section 234C. The interest is charged at 1% per month for a period of 3 months on the amount of shortfall for the first three instalments and for 1 month for the last instalment.

Conclusion: Stay Compliant and Avoid Penalties

Managing your tax obligations proactively through advance tax is a hallmark of a financially disciplined citizen. It not only helps in managing your cash flow but also ensures you remain on the right side of the law. The process is straightforward: estimate your annual income from all sources, calculate advance tax liability after accounting for all eligible deductions and TDS, and ensure you pay the correct instalments by their respective due dates. Timely and accurate advance tax payment ensures you remain compliant with the Income Tax Act and saves you from the burden of unnecessary interest and penalties.

Managing taxes can be complex. If you need help to accurately calculate advance tax in India or handle any other tax-related compliance, TaxRobo’s expert team is here to assist. Contact us today for a hassle-free tax season!

Frequently Asked Questions (FAQs)

1. I am a salaried employee with income from mutual funds. Do I have to pay advance tax?

Yes. If your total estimated tax liability for the year—calculated on your combined income from salary and capital gains from mutual funds—is ₹10,000 or more after accounting for your employer’s TDS, you are required to pay advance tax. This is a very common scenario for advance tax under the Income Tax Act for salaried employees, and it’s important to make these payments to avoid interest charges.

2. What happens if I overestimate and pay excess advance tax?

If you end up paying more advance tax than your actual liability for the year, you don’t have to worry. You can claim a refund for the excess amount when you file your Income Tax Return (ITR). The Income Tax Department will process your return, verify the excess payment, and issue the refund directly to your designated bank account.

3. Can I pay my entire advance tax in the first instalment?

Yes, absolutely. You are allowed to pay your entire advance tax liability in the first instalment itself (by June 15th) or at any point before the final deadline of March 15th. The instalment percentages mentioned in the guidelines represent the minimum cumulative amount that must be paid by each due date to avoid interest penalties.

4. How do I check if my advance tax payment has been received by the IT department?

You can verify your tax payments by viewing your Form 26AS (Annual Tax Statement) on the income tax e-filing portal. Your advance tax payment, reflected through the challan details, will typically appear in your Form 26AS within 3-4 working days of making the payment.

5. I missed the December 15th deadline. What should I do?

If you have missed a deadline, for instance, the December 15th one, you should pay the required amount as soon as possible. While you will likely be liable for interest under Section 234C for the period of delay (for 3 months), paying the due amount immediately will prevent further interest from accumulating and help you get back on track for the final 100% payment deadline of March 15th.