Advance tax is the mechanism through which the Income Tax Department collects tax on income during the year it is earned — rather than waiting until the end of the year. Failure to pay advance tax as per the prescribed schedule attracts interest under Sections 234B and 234C. Understanding advance tax is essential for business owners, freelancers, investors, and anyone with significant non-salary income.
Who is Required to Pay Advance Tax?
Every taxpayer (individual, firm, company, or other entity) whose estimated tax liability for the year exceeds ₹10,000 (after TDS credit) is required to pay advance tax. Key categories include:
- Business owners, freelancers, and self-employed professionals with significant income.
- Individuals with substantial capital gains (from shares, property, or mutual funds).
- Individuals with rental income, interest income, or other non-salary income not fully covered by TDS.
- Companies and firms — all advance tax instalments are mandatory.
Senior citizens (60+ years) without business income are exempt from advance tax.
Advance Tax Instalment Schedule
| Instalment | Due Date | % of Tax Payable |
|---|---|---|
| 1st Instalment | 15th June | 15% of estimated annual tax |
| 2nd Instalment | 15th September | 45% (cumulative) |
| 3rd Instalment | 15th December | 75% (cumulative) |
| 4th Instalment | 15th March | 100% (cumulative) |
Taxpayers opting for presumptive taxation under Section 44AD or 44ADA pay the entire advance tax in one instalment by 15th March.
How to Calculate Advance Tax
- Estimate your total income for the year from all sources.
- Compute gross tax on estimated income at applicable slab rates / rates.
- Deduct TDS already deducted or likely to be deducted.
- Deduct applicable rebates (Section 87A, etc.).
- If the net liability exceeds ₹10,000, advance tax is required.
- Pay the applicable percentage by each instalment due date via Challan 280 on the IT portal.
Interest for Non-Payment or Short Payment
- Section 234B: If advance tax paid is less than 90% of assessed tax — interest at 1% per month from 1st April of the assessment year to the date of actual payment.
- Section 234C: If advance tax paid by each due date is less than the required cumulative percentage — interest at 1% per month for 3 months (1 month for the last instalment) on the shortfall.