Advance tax: who must pay, instalment dates and interest

Income tax is not only paid when you file your return. If your tax for the year is above a limit, you pay it in instalments during the year, which is called advance tax. This guide explains who pays, when and what happens if you do not.

What is advance tax?

Advance tax is income tax paid during the financial year, in instalments, on the income you expect to earn. It spreads the payment over the year instead of leaving it all for the return. Tax deducted at source (TDS) that is already deducted on your income counts towards it.

Who has to pay advance tax?

You pay advance tax if your estimated tax for the year, after reducing TDS, reaches the limit set in the Income-tax Act, which was Rs 10,000 at the time of writing. This applies to individuals, firms, companies and others, including freelancers and professionals who receive payments without TDS. A salaried person whose tax is fully deducted by the employer usually does not have to. A resident senior citizen without business income is generally exempt.

What are the instalment dates?

For most taxpayers the usual dates and the share of the year's tax that should have been paid by then are:

• 15 June: at least 15%
• 15 September: at least 45%
• 15 December: at least 75%
• 15 March: the full 100%

Taxpayers who declare income under the presumptive schemes for small businesses and professionals can pay the whole amount in one instalment by 15 March. Dates can change, so confirm them on the income tax portal.

How do I calculate it?

1. Estimate your total income for the year from all sources.
2. Work out the tax on it under the regime you will choose.
3. Reduce the TDS and any tax credit you expect.
4. Pay the balance in instalments as above.

If your income changes during the year, adjust the next instalment. Your estimate does not have to be exact, but paying too little costs interest.

What interest applies if I pay too little or too late?

Interest is charged at a monthly rate under sections 234B and 234C when advance tax is not paid, is paid late or falls short of what was due. Section 234B looks at the overall shortfall at the end of the year, and section 234C looks at each instalment. Check the current rates and conditions on the portal.

How do I pay it?

You pay online through the income tax portal or through an authorised bank, using the challan for advance tax, and the payment shows up against your PAN. Keep the challan details for your return.

Do I need help with advance tax?

If you have several sources of income, business profits or capital gains, estimating the tax gets harder. Our Experts can compute it and remind you of the dates. See tax computation and advance tax. To choose the right return form later, read which ITR form to file.

This article is general information, not individual professional advice. Limits, dates and rates change, so check the official income tax portal or ask our Experts before you act.