The Income Tax Department, on its official X handle, has alerted taxpayers to pay their last installment of advance tax for the financial year 2024-25. The last date to pay the advance tax is March 15, 2025. The I-T department has said that taxpayers paying on time not only save themselves from penalties but also contribute towards the “Viksit Bharat Movement”.
What is advance tax?
Advance tax is the income tax that individuals and businesses have to pay in installments throughout the financial year, rather than paying it in a lump sum at the end of the financial year. It is also called the “earn and pay tax” system. If your total tax liability exceeds a certain limit, you are required to pay advance tax.
How to know whether you have to pay advance tax or not?
If you are employed and TDS is being deducted from your salary, then you may not need to pay advance tax. But if you have any other income apart from salary, such as rental income, capital gains from stock market or property, income from freelancing or business, then you may have to pay advance tax.
Similarly, if you are a doctor, lawyer, consultant, freelancer or run a business, then advance tax will have to be paid.
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According to CA (Dr.) Suresh Surana, “Section 208 requires every person whose estimated tax liability for the year is Rs 10,000 or more to their tax in advance, in the form of ‘advance tax’. However, a resident senior citizen (i.e., an individual of the age of 60 years or above during the relevant financial year) not having any income from business or profession is not liable to pay advance tax.”
Accordingly, the taxpayers need to pay such advance tax on or before the following dates as given below.
15% of total tax liability – On or before June 15
45% of total tax liability – On or before September 15
75% of total tax liability – On or before December 15
100% of total tax liability – On or before March 15
“For taxpayers who have opted for the presumptive taxation scheme under section 44AD & section 44ADA, the due date for such taxpayers would be payment of 100% of advance tax liability on or before 15th March of the financial year. Failure to pay advance tax may entail interest implications u/s 234B and 234C of the IT Act,” says Surana.
How to calculate advance tax?
Advance tax can be calculated as follows:
Step 1: Estimate Total Income
Calculate the total expected income for the financial year, including Business/professional income, Salary income, Capital gains, Rental income, Other sources of income (interest, dividends, etc.)
Step 2: Compute Taxable Income
Deduct eligible expenses, deductions (under Chapter VI-A like Section 80C, 80D, etc.), and exempt income to arrive at the taxable income.
Step 3: Calculate Tax Liability
Apply the applicable income tax slab rates for individuals, firms etc. From the gross tax computed, add surcharge (if applicable) and cess (4%) to compute the final tax liability and reduce TDS/ TCS credit and MAT Credit (if applicable) to find the net tax payable.
Step 4: Pay Advance Tax in Instalments
Make payment of advance tax in instalments as aforementioned. Advance tax is paid online via the NSDL website or through authorized banks using Challan No. 280.
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How to pay advance tax?
Advance tax can be paid online or offline:
Online: Through the government’s tax portal using net banking, debit/credit cards, or UPI.
Offline: By visiting designated bank branches and submitting the challan.
Penalty and interest.
Taxpayers failing to pay their advance taxes in due time would be subject to the following interest consequences:
Interest u/s 234B of the IT Act
A taxpayer who is liable to pay advance tax u/s 208 of the I-T Act has either failed to pay the advance tax or the advance tax paid by the taxpayer is less than 90% of the assessed tax, would be liable to pay a simple interest at 1% per month or part of a month for default in payment of advance tax, Surana said.
Such interest would be computed from the first day of the assessment year, i.e., from 1st April till the date of determination of income under Section 143(1) or when a regular assessment is made, then till the date of such a regular assessment. It is pertinent to note that any tax paid till 31st March will be treated as advance tax.
Further, interest would be calculated on the amount by which the advance tax paid falls short of the assessed tax. However, in case the advance tax is not paid at all, the interest would be computed on the entire assessed tax.
Interest u/s 234C of the IT Act
“Section 234C of the IT Act provides for levy of interest for default in payment of installment(s) of advance tax. Such interest would be levied @ 1% simple interest per month or part of a month for short payment/ non-payment of individual instalment(s) of advance tax,” says Surana.
Summing up
Advance tax payment is a crucial aspect of tax compliance for businesses and individuals with substantial income. Proper planning and timely payments help avoid penalties while ensuring financial discipline. Taxpayers should regularly assess their earnings and adjust their payments accordingly to stay compliant with tax regulations.