Advance Payment of Tax

Advance Payment of Tax refers to the liability to pay Income Tax for income earned during the same Financial Year. In general, taxpayers are required to pay tax only for the income of the preceding year. However, if the tax payable is in excess of ten thousand rupees, the tax should be remitted to the government before the due date mentioned in the Act. The purpose of incorporating Advance Tax provisions in the Act is to ensure that revenue reaches the Government without delay. According to Section 208 of Income Tax Act 1961, every person whose estimated tax liability for the financial year exceeds Rs.10,000 has to pay tax in advance.

Calculation of Advance Tax Liability

Every assessee shall be liable to pay advance income-tax during any financial year in respect of the taxpayer's total income of the financial year if the amount of advance income-tax payable exceeds ten thousand rupees.
The amount of advance income-tax payable by an assessee in the financial year should be computed in the specified manner. The assessee should first estimate the total income and calculate income-tax which is payable on the total income. The tax liability should be calculated using the rates in force in the financial year. The tax payable should include secondary and higher education cess. It should also include surcharge. The assessee should note that surcharge is calculated at a percentage of income tax, while cess is calculated as a percentage of the sum of income tax and surcharge.
The income-tax calculated as per the above step shall be reduced by the amount of income-tax which would be deductible or collectible at source during the financial year from any income which is taken into account in estimating the total income. Further, a deduction should also be made in relation to the amount of credit availed under Section 207, allowed to be set-off in the financial year.
The balance amount of income-tax shall be the advance income-tax payable.
The advance income-tax, in case of any person other than a company, shall be payable in three installments during the financial year, on or before the specified dates.

Who should pay advance tax?

Salaried persons are not required to pay advance tax, as the employer usually deducts tax at source (

TDS). However, if an employee has any other income other than salary income for which tax has not been deducted at source and the tax liability exceeds more than Rs.10000, then advance tax must be paid. On the other hand, professionals (self-employed), businessmen and corporates will have to pay taxes in advance as they typically have taxable income that exceeds the advance tax payment threshold.

When to pay advance tax?

The advance tax is to be paid in the following three installments on the following dates: For Non-Corporate Assessee:

On or before 15 September – not less than 30% of the tax payable for the year.
On or before 15 December – not less than 60% of the tax payable for the year.
On or before 15 March – not less than 100% of the tax payable for the year.

For Corporate Assessee: On or before 15 June – not less than 15% of the tax payable for the year. On or before 15 September – not less than 45% of the tax payable for the year. On or before 15 December – not less than 75% of the tax payable for the year. On or before 15 March – not less than 100% of the tax payable for the year.

How to pay advance tax?

You can pay advance tax using the tax payment challan at the bank branches impaneled with the Income Tax department. Advance tax can be deposited with State Bank of India, ICICI Bank, HDFC Bank, Indian Overseas Bank, Indian Bank, and other authorised banks. There are over 926 branches in India that can accept advance tax payments. At present, advance tax can also be paid through the NDSL website.

Exemption for Senior Citizens

According to Section 207 of the Act, a resident senior citizen (an individual aged 60 years or more) who does not have any income from business or profession is not liable to pay advance tax. For instance, a senior citizen may have various sources of income such as rental income, pension, interest from bank deposits, or dividends. Senior citizens do not have to pay advance tax, as these sources of income do not fall under the income tax head of income from business or profession. Also, this exemption is provided irrespective of the amount of income that a senior citizen earns from a source other than business or profession. Learn about the concept of Method of Accounting for IT Payers.

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Frequently Asked Questions

Common questions about Advance Tax Payment India: Compliance and Guidelines.

According to the Income Tax Act, 1961, every person whose estimated tax liability for the financial year exceeds Rs. 10,000 is required to pay advance tax. This includes professionals (self-employed), businessmen, and corporates who typically have taxable income that exceeds the advance tax payment threshold. Salaried individuals are generally not required to pay advance tax as their employers deduct tax at source (TDS) from their salaries.

To calculate the advance tax liability, the assessee first needs to estimate their total income for the financial year and calculate the income tax payable on that income using the applicable tax rates, surcharge, and cess. The assessee then needs to deduct the amount of tax that would be deducted or collected at source and the amount of credit available from the previous year's advance tax payment. The remaining amount is the advance tax payable for the current financial year.

For non-corporate assessees, the due dates for paying advance tax installments are: September 15 (30% of the tax payable), December 15 (60% of the tax payable), and March 15 (100% of the tax payable). For corporate assessees, the due dates are: June 15 (15% of the tax payable), September 15 (45% of the tax payable), December 15 (75% of the tax payable), and March 15 (100% of the tax payable).

Advance tax can be paid using the tax payment challan at the bank branches impaneled with the Income Tax department. This includes banks like State Bank of India, ICICI Bank, HDFC Bank, Indian Overseas Bank, and Indian Bank, among others. Additionally, advance tax can also be paid through the NDSL website.

Yes, according to Section 207 of the Income Tax Act, 1961, a resident senior citizen (an individual aged 60 years or more) who does not have any income from business or profession is not liable to pay advance tax. This exemption applies irrespective of the amount of income earned by the senior citizen from sources other than business or profession.

The purpose of incorporating advance tax provisions in the Income Tax Act is to ensure that revenue reaches the government without delay. By requiring taxpayers with a significant tax liability to pay a portion of their taxes in advance, the government can collect revenue during the same financial year in which the income is earned, rather than waiting until the following year.

Yes, there is a penalty for not paying advance tax on time or for paying an insufficient amount of advance tax. The penalty is calculated as a percentage of the unpaid or short-paid advance tax amount, and it is charged for each installment that is delayed or deficient.

Yes, the advance tax payments made during a financial year can be adjusted against the final tax liability calculated after filing the income tax return for that year. If the advance tax paid exceeds the final tax liability, the excess amount will be refunded to the taxpayer.

While taxpayers are required to make a reasonable estimate of their income for the purpose of calculating advance tax, they are not expected to estimate their income with absolute precision. The Income Tax Act provides for a relief mechanism whereby the interest liability on the shortfall in advance tax payment is computed based on the amount of shortfall and the period of delay.

Yes, taxpayers can revise their advance tax payments during the financial year if their estimated income or tax liability changes. The revised estimate can be used to compute the remaining installments of advance tax, ensuring that the total advance tax paid aligns with the updated tax liability estimate.