Understanding Advance Tax: Exemptions, Refunds, and the Cost of Late Payments

What is Advance Tax?

As the name suggests, it’s a tax that is paid in advance, not at the end of the financial year, on the income received during the year. Also called ‘Pay as you earn’ tax, it is paid in four installments throughout the year.  The installment dates are decided by the income tax.

Income Tax Act requires to deposit income tax on an estimated basis even before the completion of the financial year. This tax is called Advance Tax which is nothing but income tax paid before completion of the financial year.

In simple words, Advance tax is 

1. Tax is Paid in Advance when Tax Liability is More than 10,000.
2. Advance Tax is Paid in the Previous Year Itself, Thus the Tax is Paid in the year of Earning Income Itself
3. The Tax is Paid as income is earned
4. This Scheme of Advance Payment of Tax is also Called as Pay as you earn income
5. And tax paid after completion of year is called self-assessment tax.

What is Self-Assessment Tax?

After accounting for advance tax, TDS and TCS, if there is still some tax to be paid on the income for a given financial year it is called self-assessment tax. unlike advance tax, there is no fixed date for depositing this tax, but it has to be paid before filing the income tax return.

Self-assessment tax is paid by those who are obligated to file income tax returns and it can be done using challan 280.

1. Previous Year (PY) – The financial year April 1st to March 31st when you earn income.
2. Assessment Year (AY) – The following year April 1st to March 31st when your income is assesses and tax returns are filed. 

Example – Income earned form April 2024 to March 2025 is Previous year is filed in April 2025 to March 2026 will be Assessment Year.

Who Should Pay Advance Tax?

If your total tax liability is ₹10,000 or more in a financial year you have to pay advance tax. Advance tax applies to all tax payers.

1. Taxpayers who owe more than Rs. 10,000 in taxes, after adjusting TDS, in a fiscal year are required to pay advance tax. This rule applies to all categories of taxpayers, including freelancers, professionals, salaried individuals, and senior citizens.
2. Senior citizens who are more than 60 years old and do not own an enterprise are exempt from paying advance tax.
3. For taxpayers who choose a presumptive tax regime under Section 44AD for businesses. They are supposed to pay the full advance tax liability in a single payment on or before 15 March. Nevertheless, they can also pay their tax liabilities by 31 March.
4. Under the presumptive tax regime under Section 44ADA for independent professionals like architects, doctors, lawyers, consultants, etc., have to pay the full advance tax liability in a single payment either on or before 15 March. They also have the option to pay the entire amount by 31 March.

How to Calculate Advance Tax Payment?

Following table format helps to understand the calculation of the advance tax:

PARTICULARS	AMOUNT
Income from Salary	XXX
Add: Income from House Property	XXX
Add: Capital Gains	XXX
Add: Income from Other Sources	XXX
Add: Professional Income	XXX
Add: Agricultural Income	XXX
Less: Deduction (Chapter VIA)	(XXX)
Net Taxable Income	XXX
Income Tax on Net Taxable Income	XXX
Add: Surcharge	XXX
Add: Education Cess	XXX
Add: Secondary & Higher Education Cess	XXX
Total Tax Liability	XXX
Less: Rebate	(XXX)
Less: TDS/TCS/MAT (AMT) Credit Utilized	(XXX)
Advance Tax Payable	XXX

If your tax liability after deduction of TDS/TCS/MAT credit utilization it exceeds Rs.10,000, you are liable to pay advance tax.

Due Date for Payment of Advance Tax

Due Date	Amount Payable
Either on or before the 15th June	15% of advance tax liability.
Either on or before the 15th September	45% of advance tax as reduced by the amount paid in the earlier installment.
Either on or before the 15th December	75% of advance tax as reduced by the amount paid in the earlier installments.
Either on or before the 15th March	100% of advance tax as reduced by the amount paid in the earlier installments.

For example,

Mr X suggests that his estimated taxable income for the current year will be Rs.10,00,000. Based on the assumption that no income deductions were claimed, the taxes to be paid will be Rs.112,500.

As per the rule, the advance tax payment will be planned like this –

1. Paid before or on 15th June 112,500 *15% = Rs.16875 as advance tax
2. Paid before or on 15th September 112,500 *45%= 50625, differential = 50625 - 16875 = Rs. 33750 as advance tax 
3. Paid before or on 15th December 112,500*75%= 84375, differential = 84375 - 50625 =Rs.33750 as advance tax
4. Paid before or on 15th March differential =112,500 – 84375 = Rs 28125 as advance tax

For further, in depth use the below format it helps you to calculate advance tax on better way 

Estimation Total Income for the year
Tax on such estimated income as per applicable rates	A
Less: TDS Deducted/Deductible	B
Less: TCS Collected/Collectible from the assessee	C
Advance Tax (D)	A -B -C
Advance Tax Instalment Payable
Advance Tax	D
Percentage defined for installment (15 or 45 or 75 or 100)	E
Advance Tax already paid in earlier installments for the year	F
Advance Tax Instalment Payable	D*E – F

Deduction under Chapter VIA is allowable while computing liability of advance tax. If a person who has already paid one or more instalments revises his estimate of current income, he may reduce or increase his remaining instalments on the basis of revised current income.

Any amount paid as income tax on or before 31st March shall also be treated as advance tax paid during the financial year ending on that day.

• Payment is made by Challan No/ITS 280.

If the advance tax is not paid timely interest will be charged.

1. Gross total income (GTI) – Total Income from all sources such as salary, property, business etc. before deductions.
2. Net Taxable Income (NTI) – The amount on which you pay tax, calculated after eligible deductions like Section 80C, Section 80D etc.

Understanding this deduction is fundamental for accurate tax computation and planning. 

Which Forms are Required in Advance Tax?

Challan No. ITNS 280 is a form which has to be filled in on the given due dates. To fill Challan No. ITNS 280 these details require which is given below:

1. Permanent Account Number (PAN) Details: It is important to publish correct PAN details. If you fail to do so, your tax will be deposited in someone’s PAN.
2. Assessment Year: Choose the proper assessment years for which you are going to pay your tax because it is going out in advance for the following financial year.
3. Selecting the Payment Type: The taxpayer needs to choose the payment type in the form. If the tax is paid for the same financial year on the basis of estimated income, it will be advance tax. On the other hand, if the tax is paid after the completion of the financial year, it is considered as self-assessment tax.

Once the payment is made, a Challan Identification Number (CIN) will be issued. The taxpayer needs to keep a note of this number and use it while filing the Income Tax Return (ITR). Apart from this, you also need to verify whether the income tax department has received the online payment.

Note:

1. Tax paid before completion of financial year known as Advance Tax payment code for advance tax is 100
2. Tax paid after completion of financial year known as Self-Assessment Tax payment code for self-assessment tax is 300
3. If the tax is paid after assessment on notice of demand, then tax is to be paid as Tax on regular assessment under tax code 400

Advance Tax Section as per Income Tax Act

Following are the sections of the Income Tax Act, 1961 which deal with the provisions of advance tax:

1. Section 208: Conditions of liability to pay advance tax
2. Section 209: Computation of advance tax
3. Section 210: Payment of advance tax by the assessee of his own accord or in pursuance of an order of Assessing Officer.
4. Section 211: Instalments of advance tax and due dates.

How to Pay Advance Tax Online?

Here are the steps to pay advance tax online:

1. Step 1: Visit the income tax portal  https://www.incometax.gov.in/iec/foportal/
2. Step 2: Select the ‘e-Pay Tax’ option under quick links. 
3. Step 3: Enter your PAN number. Then enter your mobile number to receive an OTP. Click on ‘Continue’.
4. Step 4:  Enter the OTP received, and click on ‘Continue’. 
5. Step 5: Verify your PAN number and name, and click on ‘Continue’.
6. Step 6: Click on ‘Proceed’ under the ‘Income tax’ option. 
7. Step 7: Select the assessment year, select the ‘Advance Tax (100)’ option under ‘Type of Payment’, and click on ‘Continue’.
8. Step 8: Enter your tax amount. Fill in only the tax amount, and click on ‘Continue’.
9. Step 9: Select the payment method and click on ‘Continue’. 
10. Step 10: Verify your details and tax amount, and click on ‘Continue’. 
11. Step 11: Accept the terms and conditions and make your advance-tax payment. 

You also have the option to deposit the advance tax at the bank counter also. For that, select the ‘Pay at Bank Counter’ option in Step 9.  After this, you must verify your details, click the ‘Continue’ button, and download your challan. Finally, you have to visit your bank branch with a copy of the challan and make a payment. 

Exemptions of advance tax

As per rules there are some exemptions for excusing to paying the advance tax these are given below - 

1. Senior citizens above the age of 60 are excused from paying the advance tax.
2. If the TDS deducted exceeds the tax payable for the year, the advance tax is not required.
3. Salaried people who fall under the TDS net are exempt from paying the advance tax. Any earnings from sources such as interest, rent, capital gains and other non-salary income, on the other hand, will be subject to advance tax.

Refund of advance tax

1. If the Income Tax Department found that you paid more tax than you should have it will reimburse the difference at the end of the year.
2. Taxpayers can request a refund by completing and submitting Form 30.
3. They must submit their claim within one year of the end of the assessment year.

Interest on late payment of Advance Tax

If the advance tax is not paid timely or paying less than the specified amount against the first due date attracts a penalty at the rate of 1% interest on the remaining tax liability each month. Such an interest is paid under Section 234B and Section 234C of the Income Tax Act 1961. 

The interest penalty will also apply if taxpayers fail to pay the due amount by the next deadline. In case they fail to pay the third or last instalment, they will be paying 1% S.I. on the default tax for each month until the entire sum is paid.

Introduction to Section 234A – Interest for Default in Filing Tax Return

Income Tax Returns for a financial year need to be filed within the time limit prescribed for each year for you. Your failure to file a return within this prescribed time or not file at all will attract this Interest.

Interest under section 234B- Default in payment of Advance Tax

If an assessee who is liable to pay advance tax, but not paid the same or if the advance tax paid by him is less than 90% of the assessed tax, he is liable to pay simple interest at 1% every month or part of a month.

Interest is calculated from April 1st of the next financial year to the date of determination of total income under Section 143 (1) or till the date on which the self-assessment tax is paid, whichever is earlier. But, if regular assessment u/s. 143 (3) is completed, then interest is charged up to the date of regular assessment.

Interest shall be calculated on the amount equal to the assessed tax in case no advance tax is paid, or on the amount by which the advance tax paid falls short of the assessed tax.

Example:

1. Tax Liability was Rs 2,40,000, while TDS was Rs 40,000.
2. Tax Assessment: Rs 2,00,000 (2,40,000-40,000)
3. Now IT department assesses, whether partial payment comes under limit of 90%.
4. Rs 2,00,000* 90% = Rs 1,80,000
5. Therefore, amount of Tax paid was less than amount due by Rs 60,000 (1,80,000-1,20,000).
6. The total interest due under section 234B will be: Rs 60,000 * 1%* 4 months (April-July) = Rs 2,400.
7. The interest is taken till July because which is the due date of payment for individual assessee and assumed as month of return filing.

Interest under section 234C

If the advance tax paid is in underestimated instalments or if it’s not paid at all, Section 234C gets attracted. Interest is calculated on the difference between the instalments paid and instalments payable. Rate of interest is @ 1% p.m. for a period of 3 months for every deferment. But, for last instalments on 15th March, interest would be 1% for 1 month only. For better understanding refer table below  

Particulars	Rate of Interest	Period of Interest	Interest Payable on Amount
If the advance tax paid is less than 15% on 15th June	1% per month	3 months	15% of Tax amount less tax paid before June 15
If the advance tax paid is less than 45% on 15th September	1% per month	3 months	45% of Tax amount less tax paid before September 15
If the advance tax paid is less than 75% on 15th December	1% per month	3 months	75% of Tax amount less tax paid before December 15
If the advance tax paid is less than 100% on 15th March	1% per month	1 month	100% of Tax amount less tax paid before March 15

Example:

Mr. X is an assessee whose income tax computed was Rs 6,00,000

He paid the following advance tax:

1. 10thJune: Rs 40,000
2. 15thSeptember: Rs 50,000
3. 15thDecember: Rs 35,000
4. 15th March: Rs 30,000
• Total Advance Tax Deposited = Rs 1,55,000, TDS= Rs 1,20,000
• Tax Assessment: Rs 6,00,000- 1,20,000= Rs 4,80,000

Penalty on the Advance Tax is calculated on the basis of difference between actual amount paid and due.

1. 15% of Rs 4,80,000 = 72,000 differential = 72,000- 40,000 = Rs 32,000
2. 45% of 4,80,000 = 2,16,000 differential = 2,16,000- 90,000 = Rs 1,26,000
3. 75% of 4,80,000=3,60,000 differential =3,60,000-1,25,000= Rs 2,35,000
4. 100% of 4,80,000 = 4,80,000, differential = 4,80,000-1,55,000 = Rs 3,25,000

Interest Charges:

1. 32,000*1%*3 months = Rs 960
2. 1,26,000*1%*3 months = Rs 3,780
3. 2,35,000*1%*3 months = Rs 7,050
4. 3,25,000*1%*1 months = Rs 3,250
5. Total Penalty= Rs 15,040.

Benefits of Paying Advance Tax

1. Advance tax helps in reducing stress of taxpayers, because they do not have to pay all the money at once
2. It expedites the collection of taxes.
3. It assists organizations in effectively managing their finances and offers an estimate of the income received during the fiscal year.
4. It raises government funds since the government can receive interest on the money collected.
5. People who pay their taxes in advance avoid falling behind on their obligations.

Conclusion

Learn about Advance tax in India, how to calculate the tax who will and how to pay tax what is the exemptions and due date of payment of advance tax if somebody fail to pay on time what will the interest & penalty.

FAQ's

Under which section every person whose estimated tax liability for the year is Rs. 10,000 or more, shall pay his tax in advance, in the form of “advance tax”.

As per section 208, every person whose estimated tax liability for the year is Rs. 10,000 or more, shall pay his tax in advance, in the form of “advance tax”.

When should I pay advance tax?

If your tax liability for a year after reducing TDS exceeds Rs 10,000, you will be liable for payment of advance tax.

If I am a senior citizen with pension and interest income. Should I pay advance tax?

Resident senior citizens not having income from business or profession are not liable for advance tax.

If I do not pay advance tax? Will I be penalized?

Non-payment of advance tax will result in levy of interest under 234B and 234C of the Income tax Act, 1961.

What happens if I miss the deadline for payment of the fourth instalments of my advance tax i.e., on 15 March

You can still go ahead with payment of advance tax on or before the 31 March of the year. Such payment will still be treated as advance tax only.

How do I make an advance tax payment?

Advance tax payment is made using Challan 280 just like any other regular tax payment. Both online and offline option is available for payment of advance tax.

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