What is Advance Tax?

Advance tax is a system of paying income tax in installments throughout the financial year, rather than in a lump sum at the end of the year. It is a method used by taxpayers to fulfill their tax obligations in a timely manner. 

Individuals, including salaried employees, professionals, and businesses, are required to estimate their annual income and pay the tax due in installments, typically in quarterly installments. 

The advance tax payments are based on the year's projected income and are made before the actual tax filing deadline. This system helps in the regular collection of taxes and assists the government in managing its revenue flow. 

How to pay advance tax online way?

Following are the steps for paying advance tax online

  • Visit the Tax Information Network of the Income Tax Department of India.
  • Under the CHALLAN NO./ITNS 280 option, click on 'Proceed'.
  • Enter the appropriate tax amount, payment type, mode of payment, PAN, assessment year, and other requested details in the challan.
  • Double-check all the entered data for accuracy.
  • You will be redirected to the bank's website to complete the payment.
  • Upon successful payment, a tax receipt will be displayed on the screen.
  • Make sure to save a copy of this receipt for future reference. The receipt will contain payment details, including the BSR code and challan serial number. When filing your tax return, remember to include the BSR code and challan number from the tax receipt.

Advance Tax Due Dates For FY 2022-23

Advance Tax Payment

Due Dates

15% of Advance Tax

On or Before 15th June 

45% of advance tax less advance tax already paid

On or Before 15th September

75% of advance tax less advance tax already paid

On or Before 15th December

100% of advance tax less advance tax already paid

On or Before 15th March

For those taxpayers who have opted for the Presumptive Taxation Scheme (Sections 44AD & 44ADA) - Business Income

100% of advance tax payment on or before the 15th of March

Advance Tax Late Payment Interest

Advance tax late payment interest means the interest levied by the tax authorities on taxpayers who fail to pay their advance tax installment by the specified due dates. 

Advance tax is meant to be paid in installments throughout the financial year, and if a taxpayer is unable to pay the required amount or pays less than the prescribed amount of the total tax liability within the stipulated deadlines, they may become liable for late payment interest.

The interest is calculated based on the number of days of delay and the amount of outstanding tax. The current rate of interest is determined by the Income Tax Department and is subject to change. The interest amount is added to the outstanding tax liability and must be paid along with the pending tax amount.

However, the delay in advance tax payment tax may attract interest u/s 234C

Particulars 

Interest rate 

Amount on which interest is calculated

Time of interest

If the Advance Tax payment made on or before June 15 is lower than 15%,

1% per month

15% of the amount, subtracting the tax paid before June 15.

3 Month

If the advance tax payment made on or before September 15 is lower than 45%

1% per month

45% of the amount, subtracting the tax paid before September 15

3 Month

If the advance tax payment made on or before December 15 is lower than 75%

1% per month

75% of the amount, subtracting tax paid before December 15

3 Month

If advance tax payment made on or before March 15 is lower than 100%

1% per month

100% of the amount, subtracting tax paid before March 15

1 Month

How to calculate Advance Tax?

Let’s understand the calculation of advance tax payment with an example:

For instance, Harsh is a freelancer in the marketing field who expectedly earns Rs 30,00,000 as his annual gross receipts for the financial year 2022-23. Harsh estimates his expenses to be Rs 16,00,000. Additionally, he has made a deposit of Rs 50,000 into his PPF account and paid Rs 23,000 towards LIC premium. 

Furthermore, he has paid Rs 14,000 as medical insurance premiums. Harsh's professional receipts are subject to TDS, and he anticipates a TDS amounting to Rs 30,000 on certain professional receipts for the financial year 2022-23. Apart from professional receipts, he also expects to earn Rs 10,000 as interest on his fixed deposits. So the advance tax liability for harsh will be as follows:

Income Estimation For Advance Tax 

Amount Tax (Rs.)

Amount (Rs).

Income from profession

    

Gross receipts

Rs 30,00,000

  

Less: Expenses 

Rs 16,00,000

Rs. 14,00,000
     

Income from other sources:

    

Interest from FD

  

Rs. 10,000

Gross total Income

  

Rs. 14,10,000

Less: Deduction under section 80C

    

PPF Contribution 

Rs 50,000

  

LIC premium

Rs. 23,000

  
 

Rs. 73,000

  

Deductin u/s 80D (medical insurance premiums)

Rs. 14,000

86,000

Total Income

  

Rs. 13,24,000
   

Rs. 2,09,700

Add: Education cess@ 4%

  

Rs. 8388
   

Rs. 2,18,088

Less: TDS

  

Rs. 30,000

TAX PAYABLE IN ADVANCE

  

Rs. 1,88,088

Advance Tax Applicability

Advance Tax payment is applicable to individuals, including salaried employees, freelancers, professionals, business owners, and companies, if their estimated tax liability for the financial year exceeds a specified threshold. The applicability of Advance Tax is determined based on the following conditions:

For Individuals:

a. Resident Individuals: If the total tax liability (after considering TDS/TCS) for the financial year is Rs. 10,000 or more, Advance Tax is applicable.

b. Senior Citizens (age 60 years or above and no income from business/profession): If the total tax liability (after considering TDS/TCS) for the financial year is Rs. 10,000 or more, Advance Tax is applicable.

For Companies:

If the total tax liability (after considering TDS/TCS) for the financial year is Rs. 10,000 or more, Advance Tax is applicable.

It's important to note that Advance Tax payment is not applicable for taxpayers who have opted for the Presumptive Taxation Scheme under sections 44AD and 44ADA (for certain eligible businesses and professions). In such cases, the tax liability is paid in one installment by the due date of the filing of the tax return.