Advance Tax: What It Is and How It’s Calculated?

2025-06-19

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Every citizen of India is liable to pay tax if their income comes under the Income Tax bracket set by the Government of India. The government mainly depends on its tax collection to finance its spending throughout the year. This funding is utilised to develop the nation, reform infrastructure, and improve society, which helps shape the country's economy. A tax structure in India is followed, and as per the tax slabs, individuals are required to pay their taxes.

Let us understand what advance tax is and how to calculate advance tax in India.

Key Takeaways

Advance tax helps taxpayers avoid a large lump-sum payment at the year-end and reduces penalties for late payments.
Salaried individuals must pay advance tax if they earn additional income from rent, interest, or capital gains not covered under TDS.
Freelancers and businesses need to pay advance tax if their total tax liability exceeds ₹10,000 in a financial year.

Advance tax payments are spread over four due dates—June 15, September 15, December 15, and March 15—ensuring taxpayers manage their liability progressively.

Missing deadlines can attract interest penalties under Sections 234B and 234C.

What is Advance Tax?

Advance tax is the amount of income tax that should be paid in advance instead of a lump-sum payment at the year-end in instalments as per the due dates given by the income tax department. It is also known as the 'pay as you earn' tax and is supposed to be paid in the same year the income is received.

Who Needs to Pay Advance Tax?

Advance tax is typically mandated for individuals and entities facing substantial tax obligations. Here are the primary taxpayer groups required to fulfil advance tax payments:

As per section 208 of the Income Tax Act, a taxpayer, whether self-employed, professional, or salaried, must pay advance tax if their tax liability is ₹10,000 or more in a financial year. For instance, if your tax liability for the FY 2023-2024 exceeds ₹10,000, then you are required to pay tax in advance in the same year.
Non-resident individuals and foreign companies generating income in India must adhere to advance tax regulations if their tax liability exceeds ₹10,000.
This tax applies to self-employed individuals, professionals, and businessmen who earn money from sources other than salary. If their income exceeds a certain limit, it applies to money from shares, interest earned on fixed deposits, rent, or income received from house tenants.

Advance Tax for Salaried Individuals, Freelancers, and Businesses:

For salaried individuals, advance tax typically comes into play when they earn additional income from sources like rent, interest, capital gains, or other earnings not subjected to TDS (Tax Deducted at Source) by their employer.

For freelancers and businesses, the advance tax becomes applicable if their total tax liability exceeds ₹10,000 in a financial year. Since their income is not usually subject to TDS, they are responsible for estimating and paying their taxes in advance to avoid penalties.

Advance Tax for Senior Citizens and Presumptive Income:

Senior citizens above 60 years of age who do not have income from a business or profession are exempt from paying advance tax. On the other hand, taxpayers who opt for presumptive income schemes, such as small businesses and professionals, need to pay 100% of their advance tax liability in a single instalment by March 15 of the financial year.

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Why is Advance Tax Important?

Advance tax plays a crucial role in maintaining the financial stability of the government and providing convenience to taxpayers.

For the government, advance tax ensures a steady and timely flow of revenue throughout the financial year. This continuous inflow of funds is vital for financing essential public services, infrastructure projects, and welfare programs, helping the government operate efficiently and avoid financial bottlenecks.

For taxpayers, paying advance tax offers significant benefits. Spreading the tax liability into smaller, periodic instalments reduces the financial strain of making a large lump-sum payment at the end of the financial year. Additionally, it minimises the risk of incurring interest penalties under Sections 234B and 234C of the Income Tax Act, which are charged for delayed or insufficient tax payments.

Advance tax also encourages better financial planning, helping taxpayers stay organized and avoid surprises when it comes to their tax obligations.

Advance Tax Due Dates for FY 2025-26

The advance tax payment schedule for the financial year 2024-25 is as follows:

On or before June 15, 2024: At least 15% of the estimated tax liability.
On or before September 15, 2024: At least 45% of the estimated tax liability (cumulative).
On or before December 15, 2024: At least 75% of the estimated tax liability (cumulative).
On or before March 15, 2025: 100% of the estimated tax liability (cumulative).

Instalments and Payment Breakdown:

Advance tax payments are divided into four Instalments for taxpayers other than those under the presumptive income scheme. Each instalment represents a percentage of the total tax liability as mentioned above, allowing taxpayers to spread out their payments over the year.

Penalties for Missing Due Dates:

Failing to pay advance tax on time can lead to interest penalties under Sections 234B and 234C of the Income Tax Act. These penalties can increase the overall tax liability and add unnecessary financial stress.

Did you know?

Senior citizens over 60 years of age are exempt from advance tax.

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How to Calculate Advance Tax?

Listed below are the four steps that will help you calculate advance tax:

Estimate the total income earned by you other than your salary.
Subtract all expenses from your income, including medical insurance premiums, phone costs, travel expenses, etc.
Now, add other income that you received apart from your salary. This includes interest from FDs, house rent, lottery winnings, etc.
If the amount of tax calculated is more than ₹10,000, then you are liable to pay advance tax.

Click here to use- Income Tax Calculator

Example of Advance Tax Calculation

Naveen is a salaried professional. For FY 2025-26, Naveen estimated that his annual gross receipts would be ₹40,00,000, and his expenses would be ₹24,00,000. Naveen deposited ₹80,000 in his PPF account for his post-retirement expenses. He also paid ₹50,000 towards his life insurance premium. Further, he paid ₹24,000 towards his health insurance. The professional receipts of Naveen are subject to TDS. He estimated a TDS of ₹60,000 on certain professional receipts for the FY 2025-26. Besides, he estimated an interest of ₹10,000 on fixed deposits held by him. Here is how to calculate the advance tax on Naveen’s salary:

Income Estimation for Advance Tax	Amount (in ₹)	Amount (in ₹)
Income Details:
Gross Receipts	40,00,000
Less: Expenses	24,00,000	16,00,000

Income from other sources:
Interest from Fixed Deposit		10,000
Gross Total Income		16,10,000
Less: Deduction under Section 80C
Contribution to PPF	80,000
Life Insurance Premium	50,000
	1,30,000
Deduction Under Section 80D	24,000	1,54,000
Total Income		14,56,000

Total Tax Liability		16,40,839
Add: Health & Education Cess		63,109
		17,03,948
Less: TDS		60,000
Assessed Tax		15,80,839

Assumptions in Advance Tax Calculation

Advance tax calculations often rely on estimated income, expenses, and deductions. It's crucial to review and revise these estimates during the year to avoid overpayment or underpayment.

How to Pay Advance Tax Online?

Just like regular tax payments, advance tax payments are also made using challan. Many banks allow you to pay the tax through challans. You can also pay advance tax online from the comfort of your home.

Here's a step-by-step guide that will help you pay advance tax online without any hassles:

For advance tax payment online, you need to click on the government's official website - https://www.incometax.gov.in/iec/foportal/.
Choose the correct challan that is ITNS 280, ITNS 281, ITNS 282 or ITNS 284 as relevant to pay your advance tax.
Fill in your PAN card details and other important information such as your address, phone number, e-mail address, bank name, etc.
Once you have entered all the details, you will be redirected to the website's net banking page.
Now, you will receive all the information regarding your payment. Enter all payment details and pay your advance tax online successfully.

1. Step-by-Step Payment Process:

Log in to the Income Tax e-filing portal.
Select the “E-Pay Tax” option.
Choose Challan 280 for advance tax payment.
Fill in the required details, such as PAN, assessment year, and payment type.
Make the payment via net banking, debit card, or other available modes.
Save the receipt for future reference.

2. Documents Required for Advance Tax Payment:

PAN Card
Income estimates and tax liability calculations
Bank account details for online payment
Challan 280 Form details

3. Advance Tax Challan 280 Explained:

Challan 280 is the designated form for paying advance tax. It includes fields for PAN, assessment year, type of payment, and bank details. Filling this form accurately is critical to ensure that the payment is credited correctly.

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Interest on Late Payment of Advance Tax:

Under Section 234B, interest is charged for failing to pay 90% of the total tax liability by March 15. Additionally, Section 234C imposes interest for non-payment or short payment of individual instalments. The interest is calculated at 1% per month or part of a month.

Exemptions and Refunds in Advance Tax:

Taxpayers whose tax liability does not exceed ₹10,000 in a financial year are exempt from paying advance tax. Additionally, any excess advance tax paid is eligible for a refund, which can be claimed while filing the income tax return. Refunds are processed with interest under Section 244A, subject to conditions.

What are the Benefits of Advance Tax?

Here's a list of benefits you get when you pay tax in advance:

It reduces the burden of paying taxes at the last moment.
It helps mitigate the stress that a taxpayer may undergo while making a tax payment at the end of the fiscal year.
It saves people from failing to make their tax payments.
It helps raise government funds as the government receives interest on the tax collected.

What are Due Dates for Payment of Advance Tax?

Here's a schedule of advance tax payments for individual and corporate taxpayers:

Due Dates	Advance Tax Payable
On or before the 15th of June	15% of advance tax liability
On or before the 15th of September	45% of advance tax liability
On or before the 15th of December	75% of advance tax liability
On or before the 15th of March	100% of advance tax liability

Final Thoughts

Taxation is a civic responsibility that contributes to the nation’s overall development. Advance tax payment is an essential component of India's tax framework, ensuring timely tax payments and ensuring timely contributions towards national growth and infrastructure development. By understanding how to calculate advance tax and adhering to payment schedules, taxpayers can fulfil their duties while alleviating last-minute tax burdens.

Glossary

Tax Slab: A predefined range of income levels on which different tax rates are applied. It determines the amount of tax an individual or entity owes to the government.
Tax Liability: The total amount of tax that an individual or entity is legally obligated to pay to the government based on their income, deductions, and applicable tax rates.
Fixed Deposits (FDs): FDs are popular investment instruments offered by banks or financial institutions. Under this option, a fixed sum of money is deposited for a specified period, typically earning a predetermined interest rate.

FAQs Related to Advance Tax Payment

To pay advance tax, you need to meet the following eligibility criteria:

Your tax liability should be ₹10,000 and above
You should be a salaried professional or self-employed individual.
If you are earning through rentals from a house or property
If you earn interest from any Fixed Deposits in your name

If the taxpayer deposits less than 90% of the total tax liability, interest will be levied under Section 234B. The individual has to pay interest at 1% per month. However, if you pay a higher tax in advance or tax more than necessary, you will receive the excess amount as a refund. Income Tax department will pay interest at the rate of 6% per annum to the taxpayer on the excess amount if the amount is more than 10% of the tax liability.

Failing to pay the advance tax by due dates results in a penalty. Penalty will be levied on the unpaid amount of tax at 1% simple interest per month for part of the month under Section 234B. If the taxpayer doesn’t make the full payment, interest is levied on the shortfall amount. In case of a shortfall in payment, interest will be levied for a period of 3 months under Section 234C.

Yes, deduction can be claimed under Section 80C while estimating income for calculating advance tax.

If you are an NRI and you receive your salary in an Indian bank account, your salary is subjected to Indian Tax Laws. The last date to file income tax return in India for NRIs is July 31st. And being an NRI, if your tax liability exceeds ₹10,000 in a financial year, you are required to pay advance tax.

As a citizen of India, you must pay your taxes on time. If you fail to do so by a stipulated timeline, then you are subject to pay a certain amount in the form of penalty as per Income Tax Act, 1961. Besides, if you are planning to buy a tax savings plan online, prefer to go with Canara HSBC Life Insurance.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.