A Simple Guide to Advance Tax Calculation and Payment

Advance tax follows the ‘pay-as-you-earn’ principle, requiring taxpayers to pay income tax in installments during the financial year instead of making a lump sum payment at the end. It is governed by Sections 208 and 209 of the Income Tax Act, 1961 and applies to individuals whose estimated tax liability exceeds INR 10,000 in a financial year.

Exemption: Senior citizens (aged 60 or above) who do not earn income from business or profession are not required to pay advance tax.

How to Calculate Advance Tax?

Advance tax liability varies based on individual income. Follow these steps to determine how much you need to pay:

Step 1: Estimate Total Income

Calculate expected earnings from all five income heads:

Salary
House Property
Business or Profession
Capital Gains
Other Sources

Step 2: Deduct Exemptions and Deductions

Identify and subtract eligible deductions under applicable sections (e.g., Section 80C, 80D, 80E).

Step 3: Compute Net Taxable Income

Formula:
Net Taxable Income = Total Estimated Income – Eligible Deductions & Exemptions

Step 4: Calculate Tax Liability

Determine tax payable based on the chosen tax regime (Old vs. New).

Step 5: Adjust for TDS/TCS

Subtract TDS/TCS (if already deducted) from the calculated tax liability.

Step 6: Determine Advance Tax Payable

Advance tax must be paid on the net tax amount arrived at in Step 5.

When to Pay Advance Tax?

The due dates for advance tax payments differ based on the type of taxpayer:

For Individual and Corporate Taxpayers

By 15th June – Pay 15% of the estimated tax liability.
By 15th September – Pay 45% of the estimated tax liability (minus tax already paid).
By 15th December – Pay 75% of the estimated tax liability (minus tax already paid).
By 15th March – Pay 100% of the estimated tax liability (minus tax already paid).

For Presumptive Taxpayers (Under Section 44AD/44ADA)

By 15th March – Pay 100% of the estimated tax liability in a single installment.

How to Pay Advance Tax?

Advance tax can be paid through online and offline methods.

Online Payment Process

Visit the Income Tax e-Filing Portal.
Click on ‘e-Pay Tax’ under ‘Quick Links’.
Enter PAN, confirm it, and provide your mobile number.
Verify the OTP received and proceed under the ‘Income Tax’ tab.
Select the Assessment Year and ‘Advance Tax (100)’.
Enter tax details such as tax amount, surcharge, cess, interest, and penalties.
Choose a payment mode (Net Banking, Credit/Debit Card) and enter details.
Verify the challan preview and click ‘Pay Now’ to complete the transaction.

Offline Payment Process

Obtain Challan 280 from an authorized bank.
Fill in personal details, PAN, Assessment Year, and tax payment details.
Submit the completed Challan 280 along with the payment at the bank.

Read More: Unlocking HRA Benefits: Exemptions, Tax Savings, and Rules Explained

By following these guidelines, taxpayers can ensure timely compliance and avoid interest or penalties for late payments. Advance tax planning helps in better financial management and prevents last-minute tax burdens. Stay informed and pay your taxes efficiently!

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Difference Between Advance Tax and Self-Assessment Tax

Advance Tax

The term “advance tax” in India describes the tax that people, corporations, and businesses pay up front rather than waiting until the end of the fiscal year. Salaried workers typically use TDS, which is run by their employers, to fulfill their advance tax responsibilities.

However, additional revenue streams like capital gains, bonds, rental income, interest from savings accounts, fixed deposits, or other sources might raise the tax liability, so people have to project their upfront tax obligations.

Taxpayers must pay advance tax in quarterly installments (June, September, December, and March) if their annual tax liability exceeds Rs 10,000.

Taxes paid by March 31st at the latest are considered advance taxes paid in the same fiscal year. By checking the appropriate column, Advance Tax, on Challan ITNS 280, the advance tax deposit is made.

Who Needs to Pay Advance Tax?

According to section 208, any individual whose estimated tax liability for the year is Rs 10,000 or more must pay their tax in advance, known as ‘Advance Tax’. Explore the provisions related to advance tax payment by taxpayers in this section.

Calculating and Paying Advance Tax

a. For all taxpayers (excluding those eligible under sections 44AD and 44ADA of the Income Tax Act):

Minimum 15% by June 15
Minimum 45% by September 15
Minimum 75% by December 15
100% by March 15

b. In case of eligible assessee as referred to in sections 44AD and 44ADA: 100% On or before March 15.

Section 44AD’s presumptive taxation scheme aims to provide relief to small taxpayers in non-goods carriage businesses, excluding those under section 44AE.

The scheme under section 44AD is available to the following entities:

Resident individuals
Resident Hindu Undivided Families (HUFs)
Resident partnership firms (excluding Limited Liability Partnership Firms)

Similarly, individuals resident in India engaged in specific professions can benefit from section 44ADA:

Legal services
Medical services
Engineering or architectural services
Accountancy services
Technical consultancy services
Interior decoration services
Any other profession as notified by the Central Board of Direct Taxes (CBDT)

Who is Exempt from Advance Tax Payment?

A resident senior citizen (aged 60 years or above during the relevant financial year) with no income from business or profession is not required to pay advance tax.

Self-Assessment Tax

The amount a taxpayer pays on the required income after deducting advance tax and tax deducted at source (TDS) is known as self-assessment tax.

It describes the extra tax that a person or organization pays to the government after determining their overall tax obligation for a specific fiscal year. This is typically done when the taxpayer discovers that the amount of tax already paid—either in advance tax or through TDS (tax deducted at source)—is less than the amount of tax owed.

The self-assessment tax is computed using the income tax rates and regulations in effect for that specific fiscal year. The taxpayer has two options for making the self-assessment tax payment: going to a specific bank branch or paying online via the income tax department’s website.

Read More: Deductions under Indian Income Tax Act for Individuals and HUFs

Calculating and Paying Self-Assessment Tax

Calculation of Self-Assessment Tax: After filling out your ITR form with the TDS and advance tax details (if paid), the system computes your income and checks whether tax is still payable. You need to pay it and then fill in the challan details in the return before submitting it.

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