What is Advance Tax Payment? How to Calculate It?

Advance tax is the system of paying income tax during the year in which income is earned, instead of paying the entire amount at the end of the financial year. It applies to individuals and businesses whose total tax liability crosses a specified limit. The idea is simple: pay tax as you earn, so there is no heavy burden at the end. Advance tax covers income from salary, business or profession, capital gains, interest, rent and other sources. Paying it on time helps avoid interest and penalties and keeps cash flow planning smooth for both taxpayers and the government.

What is Advance Tax Payment

Advance tax is income tax paid in installments during a financial year based on estimated income. If your total tax liability after TDS is ₹10,000 or more in a financial year, you are required to pay advance tax.

It is also commonly called “pay-as-you-earn tax”. Instead of waiting for the assessment year to pay tax, you pay a part of it at fixed dates during the year.

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Who needs to Pay Advance Tax?

You must pay advance tax if:

1. Your total tax payable (after TDS) is ₹10,000 or more

2. You earn income from:

   1. Business or profession
   2. Freelancing or consulting
   3. Capital gains
   4. Interest, rent, dividend or other sources
   5. Salary where TDS does not fully cover tax

Who is Exempt?

• Resident senior citizens (60 years or above) with no business or professional income are exempt from paying advance tax.
• If 100% tax is already deducted as TDS, advance tax is not required.

Advance Tax Due Dates (Individuals & Businesses)

Advance tax is paid in four instalments in a financial year:

Due Date

Minimum Advance Tax Payable

15 June

15% of total tax

15 September

45% of total tax

15 December

75% of total tax

15 March

100% of total tax

These dates apply to individuals, freelancers and businesses (except those under presumptive schemes).

Advance Tax for Presumptive Taxation

For taxpayers opting for presumptive taxation (like small businesses and professionals):

• 100% of advance tax must be paid by 15 March
• Payment made by 31 March is also treated as advance tax

Income considered for Advance Tax Calculation

Advance tax is calculated on estimated total income, including:

• Salary income (after considering TDS)
• Business or professional income
• Capital gains (short-term and long-term)
• Interest from bank deposits
• Rental income
• Dividend income
• Any other taxable income

How to calculate Advance Tax (Step-by-Step)

Step 1: Estimate Total Income

Add all expected income for the financial year from different sources.

Example:

• Salary: ₹8,00,000
• Freelance income: ₹4,00,000
• Bank interest: ₹50,000

Total income = ₹12,50,000

Step 2: Calculate Tax as per Applicable Slabs

Calculate tax based on the chosen tax regime (old or new).

(For simplicity, surcharge and cess should be added where applicable.)

Step 3: Subtract TDS and Reliefs

• Deduct TDS already deducted
• Deduct reliefs or tax credits if applicable

Example:

• Total tax payable: ₹1,30,000
• TDS deducted: ₹40,000

Advance tax payable = ₹90,000

Step 4: Pay Advance Tax in Instalments

Split ₹90,000 as per instalment schedule:

• 15 June: 15% = ₹13,500
• 15 September: 45% = ₹40,500 (cumulative)
• 15 December: 75% = ₹67,500 (cumulative)
• 15 March: 100% = ₹90,000 (cumulative)

How to pay Advance Tax Online

Advance tax can be paid online through the Income Tax e-Payment portal.

Steps:

1. Visit the income tax e-payment page
2. Select Challan 280
3. Choose Advance Tax (100)
4. Enter PAN, assessment year and bank details
5. Make payment using net banking or debit card
6. Save the challan receipt for records

Advance Tax on Capital Gains

Capital gains are often unpredictable. If capital gains arise after an instalment date, you can:

• Pay advance tax in the remaining instalments
• Or pay by 31 March to avoid interest

Interest may still apply if tax is not paid promptly after the gain arises.

Interest for Late or Short Payment

Section 234B – Default in Payment

Interest applies if:

• You do not pay advance tax, or
• You pay less than 90% of total tax

Interest rate: 1% per month

Section 234C – Deferment of Instalments

Interest applies if:

• Instalments are not paid as per schedule

This interest is calculated for each missed or short installment.

Common mistakes to avoid

• Ignoring advance tax when income is not fully covered by TDS
• Forgetting income from interest or freelancing
• Missing instalment due dates
• Paying incorrect amounts without revising estimates
• Not keeping challan receipts

Why Advance Tax Is Important

• Prevents interest and penalties
• Helps in better cash flow planning
• Reduces tax burden at year-end
• Ensures smooth compliance with income tax law

Advance tax is not an extra tax. It is simply tax paid earlier.

Conclusion

Advance tax payment is an essential part of India’s income tax system for individuals and businesses with significant tax liability. If your tax payable after TDS exceeds ₹10,000, you must estimate your income, calculate tax accurately and pay it in installments within the prescribed due dates. Timely advance tax payment helps avoid interest under Sections 234B and 234C and ensures stress-free tax filing at the end of the year. Planning and periodic review of income during the year can make advance tax simple and manageable.