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What is Advance Tax?
In simple words, an advance tax is the income tax which we have paid in the same financial year in which we earn it. Generally, we pay our income tax to the government in the next financial year i.e assessment year, after calculating the financial data of previous financial year, but in the case of advance tax it is paid in the year in which income is earned and in other words, the tax which we paid in advance before assessment year is called advance tax.
Who Should Pay Advance Tax?
As per Section 208 of the Income Tax Act, individuals with an estimated tax liability of Rs. 10,000 or higher for a financial year must make advance tax payments.
Exemptions
A resident senior citizen aged 60 years or above in the relevant financial year and who does not generate any income from a business or profession is exempt from the obligation to pay advance tax.
Legal Aspects
Non-payment of advance tax will result in levy of interest under 234B and 234C of the Income tax Act, 1961.
Interest on Advance Tax
Non- Payment of advance tax will attract interest under 234B
As per section 234 B, you must pay at least 90% of the total taxes as advance tax by 31st March. Failure to make advance tax payment will result in an interest @ 1% on the unpaid amount.
Advance Tax Due Dates and its Calculations
| Delay in payment of advance tax will attract interest under 234C: |
| Due Dates |
Rate of Interest |
Period of Interest |
Amount on which interest is calculated |
| June 15 If Advance Tax paid by 15th June is less than 15% |
1% per month |
3 months |
15% of Amount* (-) tax paid before June 15 |
| September 15 If Advance Tax paid by 15th September is less than 45% |
1% per month |
3 months |
45% of Amount* (-) tax paid before September 15 |
| December 15 If Advance Tax paid by 15th December is less than 75% |
1% per month |
3 months |
75% of Amount* (-) tax paid before December 15 |
| March 15 If Advance Tax paid by 15th March is less than 100% |
1% per month |
1 month |
100% of Amount* (-) tax paid before March 15 |
Benefits of Paying Advance Tax
- Avoid interest: It is mandatory for taxpayers to deposit advance tax on a timely basis. If you do not pay advance tax on the due date, you must pay interest on the amount due. Thus, paying advance tax helps you avoid interest penalties.
- Avoids tax default: Paying advance tax helps you avoid unwittingly non-paying income-tax dues. If you fail to pay your tax liabilities on time, you may face negative consequences, such as interests, penalties, or any other legal consequences.
- Reduce tax burden: You can spread your tax liability over the year by paying taxes in advance rather than confronting a huge tax bill at the end of the financial year. This reduces the financial strain and allows for a more balanced approach to tax payment.
- Better financial planning: Paying advance tax requires estimating your taxable income for the financial year and making corresponding tax payments in instalments. Hence, it encourages better financial planning and budgeting, allowing you to manage your cash flows effectively.
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