Advance Tax

What is Advance Tax?

Advance Tax means paying tax in parts before the financial year ends, instead of waiting till you file your income tax return. That’s why it’s also called the “Pay as You Earn” scheme. You estimate your income for the year, and if your total tax is ₹10,000 or more, you need to pay it in advance through instalments.

Who Needs to Pay Advance Tax?

You must pay advance tax if your total income tax (after deductions and TDS) for the year is ₹10,000 or more. It applies to:

·       Salaried individuals

·       Business owners

·       Professionals

·       Freelancers

Who is Not Required to Pay Advance Tax?

You are exempt from paying advance tax if:

• You are a resident individual aged 60 or above, and
• You don’t have business or professional income

How is Advance Tax Calculated?

Here’s a simplified process:

1.        Estimate your total income for the year (include salary, business, interest, rent, etc.)

2.      Subtract deductions (like Section 80C, 80D)

3.       Apply the current tax rates

4.      Deduct TDS/TCS, tax rebates, and credits (like MAT/AMT credit)

5.       The remaining amount is your advance tax liability

You must round off the amount to the nearest ₹10.

When Do I Need to Pay Advance Tax?

You need to pay it in 4 instalments:

If you file tax under presumptive income (Section 44AD/44ADA), you can pay 100% in one go by March 15.

Can I Adjust Advance Tax in Future Instalments?

Yes! If you paid more or less in a previous instalment, you can recalculate and adjust the amount in the next one based on your updated income estimate.

How Can I Pay Advance Tax?

You can pay:

·       Online via internet banking or debit cards (mandatory for companies and those requiring audit)

·       Offline using Challan No. ITNS 280 at authorized banks

Payment can also be made from another person's bank account, as long as your PAN is mentioned in the challan.

What Happens If I Don’t Pay Advance Tax on Time?

You may have to pay interest and penalties under:

·       Section 234B – For not paying advance tax

·       Section 234C – For paying late or in incorrect instalments

Can the Income Tax Officer Ask Me to Pay Advance Tax?

Yes. If the officer believes you should be paying advance tax based on your past income, they can send you a demand notice (Form 28). You can:

·       Agree and pay as per the notice

·       Disagree and inform the officer using Form 28A, and pay tax as per your own estimate

What If I Don’t Respond to a Tax Notice?

If you ignore the demand notice and don’t pay, the tax department can treat you as an "assessee-in-default," which may lead to penalties and further action.

Is Advance Tax Credited Against My Final Tax Bill?

Yes! Any advance tax you pay is adjusted against your final tax liability when you file your income tax return. You get full credit for it.