Advance Tax Payment Guide: Due Dates and How to Calculate

The Income Tax Department of India requires individuals and businesses to pay advance tax in four instalments, which are due on 15th June, 15th September, 15th December, and 15th March. Failure to pay advance tax on time can result in interest penalties under Sections 234B and 234C. In this article, we will guide you through the process of estimating and paying advance tax, and provide a real-world example to illustrate the concept.

Quick Comparison of Old and New Tax Regimes

Source: Income Tax Department, Government of India

The new tax regime offers lower tax slabs and fewer deductions, making it a more attractive option for many taxpayers. However, it is essential to understand the implications of switching to the new regime, especially when it comes to advance tax payments.

The ₹10,000 Threshold that Triggers Advance Tax Liability

The Income Tax Department requires individuals to pay advance tax if their tax liability exceeds ₹10,000 in a financial year. This threshold applies to individuals who have income from various sources, including salary, interest, dividends, and capital gains.

Why it Matters: The ₹10,000 threshold is a crucial consideration for taxpayers who have multiple income sources. Failure to pay advance tax on time can result in interest penalties under Sections 234B and 234C.

What to Do: To determine if you need to pay advance tax, calculate your total tax liability for the financial year. If it exceeds ₹10,000, you will need to pay advance tax in four instalments.

Instalment Percentages Due by 15 Jun, 15 Sep, 15 Dec, and 15 Mar

The instalment percentages for advance tax payments are as follows:

For example, if your total tax liability is ₹1 lakh, you will need to pay:

• ₹15,000 (15% of ₹1 lakh) by 15th June
• ₹45,000 (45% of ₹1 lakh) by 15th September
• ₹75,000 (75% of ₹1 lakh) by 15th December
• ₹1 lakh (100% of ₹1 lakh) by 15th March

Interest under Sections 234B and 234C for Shortfalls

If you fail to pay advance tax on time, you will be liable to pay interest under Sections 234B and 234C. The interest rates are as follows:

For example, if you fail to pay ₹10,000 in advance tax by 15th June, you will be liable to pay interest under Section 234B at the rate of 1% per month or part thereof. If you pay the ₹10,000 on 15th July, you will be liable to pay interest for one month, which is ₹100 (1% of ₹10,000).

Paying via Challan 280 on the Income Tax Portal

To pay advance tax, you will need to use Challan 280 on the income tax portal. Here are the steps to follow:

1. Log in to the income tax portal using your credentials. 2. Click on the "Pay Tax" tab and select "Advance Tax". 3. Fill in the required details, including your PAN, assessment year, and tax liability. 4. Select the instalment for which you want to pay tax. 5. Enter the amount of tax you want to pay. 6. Click on the "Pay" button to complete the payment.

Estimating Variable Freelance or Business Income for Each Quarter

If you have variable freelance or business income, you will need to estimate your income for each quarter to determine your advance tax liability. Here are the steps to follow:

1. Calculate your total income for the financial year. 2. Estimate your income for each quarter based on your past performance. 3. Calculate your tax liability for each quarter based on your estimated income. 4. Pay advance tax in four instalments, as mentioned earlier.

Real-World Example

Let's consider an example of Rahul, a salaried engineer in Bengaluru earning ₹14 lakh CTC. He pays ₹22,000/month rent in HRA. Under the old tax regime, his exempt HRA portion may differ sharply from the new regime where HRA deduction is unavailable. To determine his advance tax liability, Rahul will need to estimate his income for each quarter and calculate his tax liability accordingly.

Assuming Rahul's income for each quarter is as follows:

Rahul's total income for the financial year is ₹14 lakh. His tax liability for each quarter is as follows:

Rahul will need to pay advance tax in four instalments, as mentioned earlier. He will also need to pay interest under Sections 234B and 234C if he fails to pay advance tax on time.

In conclusion, advance tax payment is a crucial aspect of tax compliance in India. It is essential to understand the instalment percentages, interest rates, and payment procedures to avoid penalties and interest charges. By following the steps outlined in this article, you can ensure that you pay advance tax on time and avoid any potential issues with the Income Tax Department.