Advance tax is a mechanism that allows taxpayers to pay their income tax liabilities in instalments throughout the year instead of as a lump sum at the end of the financial year. This system ensures a steady flow of revenue to the government and spreads out the taxpayer’s burden.

Who needs to pay advance tax?

According to Section 208 of the Income Tax Act, 1961, taxpayers with an estimated annual tax liability exceeding ₹10,000 are required to pay advance tax. This applies to both individuals and businesses.

However, senior citizens aged 60 and above who do not earn income from a business or profession are exempt from paying advance tax during the financial year.

Deadlines for advance tax instalments

The advance tax is paid in four instalments over a financial year, with the following deadlines and percentages:

• First instalment (June 15): 15% of the total tax liability
• Second instalment (September 15): 45% of the total tax liability
• Third instalment (December 15): 75% of the total tax liability
• Fourth instalment (March 15): 100% of the total tax liability

If the due date falls on a holiday or a day when banks are closed, taxpayers can make the payment on the next working day.

How to calculate advance tax?

Advance tax in India is determined based on applicable income tax slabs and involves estimating the taxpayer’s total income for the financial year. Here’s a step-by-step guide to calculate advance tax:

Step-by-step calculation:

1. Calculate your gross total income: Add income from all sources, including salary, house property, business or profession, capital gains, and other income.
2. Subtract deductions under Chapter VIA: Reduce the gross total income by applicable deductions such as those under Sections 80C, 80D, etc., to arrive at your taxable income.
3. Apply rebate under Section 87A: If eligible, calculate and deduct the rebate under Section 87A from your taxable income.
4. Add surcharge (if applicable): Include any surcharge applicable based on your income level.
5. Include health and education cess: Calculate the health and education cess at 4% on the total tax amount (including any surcharge).
6. Account for marginal relief (if applicable): If your income exceeds the threshold for surcharge, apply marginal relief to reduce the tax burden, if eligible. 
7. Determine net taxable income: After factoring in the cess and marginal relief, you arrive at the final tax liability.
8. Calculate tax liability as per slabs: Apply the applicable tax rates to your net income to calculate the total tax liability.
9. Deduct TDS (Tax Deducted at Source): Subtract any TDS already deducted from your income during the year to arrive at your remaining tax liability.

Penalties for non-payment

Failure to pay advance tax on time attracts penalty interest of 1% per month under Sections 234B and 234C of the Income Tax Act. This penalty is levied as simple interest on the unpaid amount of advance tax, making timely payments crucial to avoid additional costs.

How to pay advance tax?

Paying advance tax online is straightforward. Here’s a step-by-step guide:

• Visit the official Income Tax Department website.
• Under the Quick Links tab, select the ‘e-pay’ option.
• Enter your PAN, mobile number, and click ‘continue’.
• You will receive an OTP on your registered mobile number. Enter the OTP and proceed.
• Choose the ‘Income Tax’ option and fill in your details, including assessment year, contact information, and bank name.
• Once completed, the system redirects you to the payment gateway. Enter the necessary payment details and complete the transaction.
• After payment, you will receive a confirmation along with the challan number for your records.