Advance Tax

What is Advance Tax?

Think of advance tax as a pay-as-you-earn system for your income tax. Instead of waiting till the end of the year and facing a large sum, you spread out your tax payments in instalments throughout the financial year.

Who needs to pay Advance Tax?

• Individuals and businesses with an estimated annual tax liability exceeding Rs. 10,000 are required to pay advance tax.
• This includes individuals earning from sources other than salaried income, such as:
  • Rental income
  • Business income
  • Capital gains
  • Professional fees

Benefits of Paying Advance Tax:

• Reduced financial burden: Avoid the stress of a large tax payment at year-end.
• Improved cash flow management: Predictable tax payments allow for better budgeting.
• Avoid interest and penalties: Late payment attracts penalties and interest, which can be significant.
• Promotes financial discipline: Regular tax payments encourage responsible financial management.

How to Calculate and Pay Advance Tax:

1. Estimate your total taxable income for the year (income from all sources).
2. Calculate your tax liability by applying the applicable tax rates.
3. Pay the calculated tax in instalments:
   • 1st installment: 15% of the tax liability by June 15th
   • 2nd installment: 45% of the tax liability by September 15th
   • 3rd installment: 75% of the tax liability by December 31st
   • 4th installment: Remaining tax liability by March 31st (following the financial year)

Advance tax can be paid online through the Income Tax Department’s website or via authorized banks.