Advance Tax Payment

What is Advance Tax Payment?

Advance tax payment is a system where you make periodic payments of your estimated taxes before the end of the financial year. It helps in the timely collection of taxes and ensures a steady revenue generation for the Government of India.

This practice is required for individuals and businesses with substantial income to prevent a lump-sum tax burden at the end of the fiscal year.

The applicability of advance tax comes into the picture when you have sources of income other than your salary. For example:

• Income through interest on investments
• Income through capital gains, business, house property, or lottery

Who Should Pay Advance Tax?

The following categories are to pay advance tax:

Note: Eligible advance taxpayers can easily assess their tax liabilities on their estimated total income in advance with the help of the Advance Tax Calculator. 

Advance Tax Due Dates for FY 2025-26 (AY 2026-27)

To understand the advance tax rates, it's crucial to know the advance tax due dates with percentage of payment.

1. For Individuals & Corporate Taxpayers

   Due Date of Advance Tax Payment	Amount Payable
   On or before June 15	15% of total tax liability
   On or before September 15	45% of total tax liability (-) advance tax already paid
   On or before December 15	75% of total tax liability (-) advance tax already paid
   On or before March 15	100% of total tax liability (-) advance tax already paid

2. For Taxpayers Opting for Presumptive Taxation Scheme

   For taxpayers who have opted for the Presumptive Taxation Scheme for Business Income under Sections 44AD and 44ADA:

   Due Date	Advance Tax Payment Percentage
   On or before March 15	100% of advance tax

How to Pay Advance Tax?

You can pay advance tax through the following two ways:

1. Online Method

   Step 1: Go to the e-filing portal of the Income Tax Department.

   Step 2: Select the 'e-Pay Tax' option from the 'Quick Links' section, or search for 'e-Pay Tax' in the search bar.

   Step 3: Enter your PAN and mobile number, and then enter the 6-digit OTP to continue.

   Step 4: Select the 'Income Tax' box and click on 'Proceed.'

   Step 5: Select the 'Assessment Year' as 2026-27 and 'Type of Payment' as 'Advance Tax (100).' Click on 'Continue.'

   Step 6: Enter your tax details, including tax, surcharge, cess, interest, and any other penalties.

   Step 7: Select your preferred payment method (net banking, debit card, or credit card) and your bank. Preview the challan details and click 'Pay Now.'

   Step 8: After the payment is complete, save the tax receipt, which will include the BSR code and challan serial number. These details are required for filing your ITR.

2. Offline Method

   Step 1: Download Challan ITNS 280 from the official website of the Income Tax Department.

   Step 2: Fill out the form with your personal details, PAN, assessment year, and payment information.

   Step 3: Submit the completed form along with your payment at any authorized bank branch.

   Step 4: The bank will provide you with a stamped copy of the Challan 280 as a receipt for your payment.

What is Late Payment Interest on Advance Tax?

Interest is charged on unpaid or underpaid advance tax. The provisions for this are primarily covered under Sections 234B and 234C of the Income Tax Act, 1961.

Nature of Interest Charged: Unpaid or underpaid advance tax.

Rate of Interest: 1% per month.

Section 234B Penalty Applicability: If you fail to pay at least 90% of your total tax liability as advance tax by March 31st of the financial year. 

Section 234C Penalty Applicability: If there is a delay or shortfall in the payment of any advance tax installment. 

How to Calculate Advance Tax?

To compute your advance tax liability, follow the given steps: 

• Estimate Your Total Income: Sum up all your income sources for the financial year.
• Subtract Deductions: Subtract all eligible deductions (like those under Section 80C, 80D, etc.) from your total income.
• Find Your Taxable Income: The amount left after deductions is your taxable income.
• Calculate Tax Liability: Apply the current tax slab rates to your taxable income to find your total tax liability, including any cess or surcharge.
• Deduct TDS: Subtract any TDS (Tax Deducted at Source) that has already been paid.
• Determine Advance Tax Payable: The final amount is your net tax liability. If it is more than INR 10,000, you are required to pay it as advance tax. 

Let us understand better with the help of the following table: 

Your advance tax liability will be paid in installments of 15%, 45%, 75%, and 100% of the Net Tax Liability on or before the respective due dates in June, September, December, and March.

Example for Advance Tax Calculation

Let's illustrate the calculation with an example. Suppose Ajay, a freelancer, earns an estimated annual income of INR 10,00,000 from his profession. He has also earned interest of INR 50,000 from a fixed deposit. He has various deductions to claim, such as investments in PPF and payments for medical insurance, totaling INR 1,50,000.

Since Ajay's net tax payable exceeds INR 10,000, he is required to pay advance tax in installments.

Conclusion

Advance Tax Payment under the Income Tax Act, 1961 is a proactive and essential financial practice that enables individuals and businesses to meet their tax obligations in a timely manner. By making periodic payments throughout the fiscal year, taxpayers not only ensure compliance with the law but also contribute to efficient revenue collection for the government. This approach not only helps in avoiding last-minute financial strain but also reflects a responsible and organized approach towards managing one's tax liabilities.