Advance tax is the mechanism by which the Government collects tax throughout the year rather than at the end. If your tax liability for the year exceeds 10,000 after TDS, you must pay advance tax in four installments.
Who Must Pay Advance Tax:
- All individuals with estimated tax liability > 10,000 after TDS
- Business owners and self-employed professionals
- Taxpayers with capital gains during the year
- Taxpayers with significant other income (rent, dividends, interest)
Exemption:
Senior citizens (60 years and above) who do not have income from business or profession are exempt from advance tax.
Installment Schedule:
- 1st Installment: 15 June — 15% of total tax
- 2nd Installment: 15 September — 45% of total tax (cumulative)
- 3rd Installment: 15 December — 75% of total tax (cumulative)
- 4th Installment: 15 March — 100% of total tax
How to Calculate:
Step 1: Estimate total income for the year (salary + business + other)
Step 2: Calculate tax on total income using applicable slabs
Step 3: Add 4% cess
Step 4: Deduct TDS already deducted
Step 5: Balance is advance tax liability
Step 6: Pay installments as per schedule above
Section 234C — Interest for Default:
If you fail to pay the required percentage by each due date, interest at 1% per month is charged for 3 months (1 month for 4th installment).
Payment Process:
Pay via Challan 280 on the IT Department portal (incometax.gov.in). Select "Advance Tax" (code 100) under payment type. The payment is linked to your PAN automatically.