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Advance tax is the mechanism by which the Income Tax Act requires taxpayers to pay their estimated income tax liability in instalments during the financial year itself - rather than waiting until the return filing deadline. The principle is "pay as you earn." If your estimated total tax liability for the financial year exceeds Rs 10,000, you are required to pay advance tax. Failure to pay advance tax or underpaying it results in mandatory interest charges under Sections 234B and 234C.
- Any taxpayer (individual, HUF, firm, company) whose estimated tax liability exceeds Rs 10,000 in a financial year
- Business owners and professionals with income from business or profession
- Investors with significant capital gains
- Taxpayers with large rental income, interest income, or dividend income
- Companies and LLPs - mandatory regardless of amount
Exempt from advance tax: Salaried employees whose entire income is salary from which TDS is deducted at source (since employer already deducts and remits TDS monthly). Also exempt: Resident senior citizens above 60 years who have no income from business or profession.
Advance Tax Due Date Schedule
| Instalment | Due Date | Cumulative % to be Paid |
|---|---|---|
| 1st Instalment | 15 June | At least 15% of estimated tax |
| 2nd Instalment | 15 September | At least 45% of estimated tax |
| 3rd Instalment | 15 December | At least 75% of estimated tax |
| 4th Instalment | 15 March | 100% of estimated tax |
Note: For taxpayers opting for Presumptive Taxation under Section 44AD or 44ADA, the entire advance tax must be paid in one instalment by 15 March.
How to Calculate Advance Tax
Add all expected income: salary, business profits, professional fees, rental income, interest, dividends, and any capital gains. For business income, use the current-year projected figure.
Apply the applicable tax slab rates (old or new regime). Add surcharge (if income exceeds Rs 50 lakh) and Health and Education Cess at 4% on income tax plus surcharge.
Subtract any TDS already deducted by your employer, banks, clients, or tenants. The balance is your net tax liability for the year.
If the net tax liability exceeds Rs 10,000, divide payment per the instalment schedule above. Pay via Challan 280 on the Income Tax e-Filing portal (incometax.gov.in).
Interest Penalties for Default
| Section | Situation | Interest Rate |
|---|---|---|
| 234B | Advance tax paid is less than 90% of assessed tax | 1% per month from 1st April to date of assessment |
| 234C | Instalment not paid on time or paid less than required % | 1% per month for 3 months (1 month for last instalment) |
Capital gains are often not known in advance. If you sell property or equity shares mid-year and earn significant capital gains, you should pay advance tax on those gains in the next instalment due after the date of sale. The interest under Section 234C for capital gains is calculated only from the next instalment date - not from the beginning of the year - so you are not penalised for gains you could not have predicted.
Businesses and professionals opting for Presumptive Taxation under Sections 44AD (turnover up to Rs 3 crore for business) or 44ADA (gross receipts up to Rs 75 lakh for professionals) can pay their entire advance tax in one shot by 15 March. This is a significant compliance simplification - no need to estimate income at three points during the year. Interest under 234C is waived if the entire amount is paid by 15 March.
Advance tax planning is a critical part of business financial management. Underpaying or missing advance tax instalments results in mandatory 1% monthly interest - a cost that is entirely avoidable with proper planning. Legal Chanakya provides advance tax computation, quarterly tax planning, and complete income tax compliance services for businesses, professionals, and HNIs.
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