Advance Tax: Who Needs to Pay and How to Complete the Process
Siddhi Jain January 15, 2025 06:15 PM

Advance tax is an important part of the income tax system, requiring taxpayers to pay taxes in installments throughout the financial year. This helps prevent a lump sum burden on taxpayers and ensures steady government revenue. Here's everything you need to know about advance tax, who needs to pay it, and how to make the payment.

What Is Advance Tax?

Advance tax refers to the payment of income tax during the same year in which the income is earned, rather than paying it as a lump sum at the end of the financial year. It applies to individuals and businesses whose tax liability is ₹10,000 or more in a year.

Who Needs to Pay Advance Tax?

Under Section 208 of the Income Tax Act, 1961, the following are required to pay advance tax:

  • Individuals and businesses with an annual tax liability of ₹10,000 or more.
  • Both salaried and self-employed individuals, as well as companies, are covered.

Exemption:
Senior citizens aged 60 years or above with no income from a business or profession are exempt from paying advance tax.

Advance Tax Installments and Deadlines

Advance tax is paid in four installments during the financial year:

  1. 15th June: 15% of total tax liability
  2. 15th September: 45% of total tax liability
  3. 15th December: 75% of total tax liability
  4. 15th March: 100% of total tax liability

Steps to Pay Advance Tax

Follow these steps to pay advance tax:

  1. Visit the Income Tax Department's official website.
  2. Go to the Quick Links tab and select the e-pay option.
  3. Enter your PAN and registered mobile number, then click Continue.
  4. An OTP will be sent to your registered mobile number. Enter it and click Proceed.
  5. Select the Income Tax option and provide the necessary details such as:
    • Assessment Year
    • Contact Details
    • Bank Details
  6. The system will redirect you to the payment gateway.
  7. Complete the payment by entering your payment details.
  8. After the transaction, you will receive a confirmation and a challan number as proof of payment.

How to Calculate Advance Tax

Here’s how you can calculate advance tax:

  1. Estimate your total income for the financial year.
  2. Deduct any exemptions and deductions you are eligible for.
  3. Calculate your taxable income:
    Estimated Income - Deductions - Exemptions = Taxable Income
  4. Compute your tax liability based on the applicable tax slab or corporate tax rate.

Benefits of Paying Advance Tax

  • Avoids Penalties: Non-payment or late payment can attract penalties under Sections 234B and 234C of the Income Tax Act.
  • Reduces Year-End Burden: Paying in installments helps avoid a large outflow at the end of the year.
  • Smoothens Government Revenue: Ensures consistent inflow of revenue for public spending.

Plan your tax payments efficiently to stay compliant and avoid penalties. Advance tax ensures a smoother tax experience for both taxpayers and the government.

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