Advance Tax: A Comprehensive Guide to Staying Tax Compliant

Paying taxes is a critical responsibility, and advance tax payment ensures you meet your obligations on time, avoid penalties, and maintain a smooth financial flow. Let’s break down the essentials of advance tax: who needs to pay, how to calculate and pay it, its benefits, and the schedule.

What is Advance Tax?

Advance tax, often referred to as “pay-as-you-earn” tax, requires taxpayers to pay their estimated taxes in instalments throughout the year rather than as a lump sum at year-end. This system primarily applies to individuals, businesses, and professionals with significant income sources beyond salaried earnings.

Who Falls Under the Advance Tax Net?

You must pay advance tax if your total tax liability exceeds ₹10,000 in a financial year. This applies to:

1. Self-employed individuals and professionals (e.g., doctors, lawyers, freelancers).
2. Businesses with significant income streams.
3. Individuals earning from secondary income sources like rent, interest, or capital gains.
4. Salaried individuals, if they earn significant additional income beyond their salaries.

Exemption:
Senior citizens above 60 years with no income from business or profession are exempt from advance tax payments.

How to Calculate Advance Tax?

1. Estimate Total Income: Include all sources such as salary, rent, business income, and capital gains.
2. Deduct Eligible Deductions: Subtract deductions under applicable sections like 80C, 80D, etc.
3. Compute Tax Liability: Apply the current income tax slabs to calculate gross tax liability.
4. Subtract TDS (Tax Deducted at Source): Deduct TDS already paid by employers or others.
5. Divide Into Installments: Pay the remaining amount as per the advance tax schedule.

Income Tax Slab Old Vs New Regime

Total Income – 12,00,000

NEW Regime			OLD Regime
Income Slabs	Tax rate		Income Slabs	Tax rate
Up to Rs 3 lakh	NIL		Up to Rs 2,50,000	NIL
Rs 3 lakh – Rs 7 lakh	5%		Rs 2,50,001 – Rs 5,00,000	5%
Rs 7 lakh – Rs 10 lakh	10%		Rs 5,00,001 to Rs 10,00,000	20%
Rs 10 lakh – Rs 12 lakh	15%		Rs 10,00,001 and above	30%
Rs 12 lakh – Rs 15 lakh	20%
Above Rs 15 lakh	30%

 

As per new regime				As per old regime
3,00,000	0%	0		2,50,000	0%	0
4,00,000	5%	20,000		2,50,000	5%	12,500
3,00,000	10%	30,000		5,00,000	20%	1,00,000
2,00,000	15%	30,000		2,00,000	30%	60,000
	Total Tax	80,000			Total Tax	1,72,500
	Add:Cess 4%	3,200			Add:Cess 4%	6,900
		83,200				1,79,400
	Less:TDS	70,000			Less:TDS	70,000
	Net Tax Liability	13,200			Net Tax Liability	1,09,400

 

Schedule of Advance Tax Payment				Schedule of Advance Tax Payment
Q1	15%	1,980		Q1	15%	16,410
Q2	45%	5,940		Q2	45%	49,230
Q3	75%	9,900		Q3	75%	82,050
Q4	100%	13,200		Q4	100%	1,09,400

 

Schedule of Advance Tax Payment

• On or before 15th June: 15% of total tax liability.
• On or before 15th September: 45% of total tax liability.
• On or before 15th December: 75% of total tax liability.
• On or before 15th March: 100% of total tax liability.

How to Pay Advance Tax?

1. Visit the Income Tax e-Filing Portal.
2. Log in and select Challan 280 for Advance Tax payment.
3. Fill in the required details, calculate the tax amount, and complete payment online.
4. Save the receipt for reference.

What is Advance Tax Late Payment Interest?

If you miss advance tax deadlines, interest under Sections 234B and 234C will be charged:

1. Section 234B: Interest at 1% per month if 90% of your total tax liability isn’t paid by the 31st of March.
2. Section 234C: Interest at 1% per month for late instalments based on the shortfall of payments according to the schedule.

For instance:

• If you miss paying the first instalment by 15th June, interest is charged on the shortfall amount until the next instalment.

Why Advance Tax is a Smart Financial Move

1. Avoid Interest: Prevent late-payment interest charges under Sections 234B and 234C.
2. Manage Cash Flow: Reduces the burden of a single, large year-end payment.
3. Improved Compliance: Keeps you in line with income tax laws and avoids legal troubles.
4. Better Financial Planning: Provides clarity on annual tax liability, aiding in better budgeting.

At Laabdhi, we offer expert assistance in advance tax calculation and payment. From ensuring accurate estimates to filing payments seamlessly, our services are designed to keep you compliant while minimising stress. Our team helps businesses and individuals optimise tax planning and manage deadlines effectively.

Conclusion

Advance tax payment is a crucial step in maintaining tax compliance and financial health. By understanding the calculation process, payment methods, and schedule, you can easily save your time and penalties. Stay ahead of any tax challenges with Laabdhi.