Many taxpayers in India assume that income tax is paid only once a year while filing the return. In reality, the Income Tax Act requires certain people to pay tax in advance, during the financial year itself. This system is called Advance Tax, and misunderstanding it is one of the most common reasons for interest penalties and tax notices.
Advance tax is not just for big business owners. Freelancers, professionals, investors, and even salaried individuals with extra income often fall under its scope without realising it.
⭐ What Is Advance Tax?
Advance tax means paying your income tax in instalments during the same financial year in which you earn the income, instead of paying it all at once at the end.
The idea behind advance tax is simple:
- The government gets a steady flow of revenue
- Taxpayers avoid a large lump-sum burden later
It is sometimes called “pay-as-you-earn tax”.
⭐ Who Needs to Pay Advance Tax?
You are required to pay advance tax if your total tax liability in a financial year is ₹10,000 or more, after adjusting TDS.
This applies to:
- Freelancers and consultants
- Business owners and traders
- Professionals (doctors, lawyers, architects, etc.)
- People earning from rent, capital gains, or interest
- Salaried employees with significant additional income
If you rely only on salary and your employer deducts correct TDS, advance tax usually does not apply. But the moment you earn income outside salary, things change.
⭐ Who Is Exempt from Advance Tax?
The following are not required to pay advance tax:
- Senior citizens (60 years or above) without business income
- Individuals whose total tax liability is below ₹10,000
- Salaried employees with full TDS coverage and no other income
This exemption is often misunderstood, especially by retirees earning interest or rental income.
⭐ Advance Tax Due Dates (Important)
Advance tax is paid in four instalments during the financial year:
- 15 June – 15% of total tax
- 15 September – 45% of total tax
- 15 December – 75% of total tax
- 15 March – 100% of total tax
Missing even one instalment can attract interest, even if you pay the full tax later.
⭐ How Advance Tax Is Calculated
To calculate advance tax, you need to estimate your annual income:
- Calculate total expected income from all sources
- Subtract eligible deductions
- Calculate total tax as per slab rates
- Reduce TDS already deducted
- Pay the remaining amount as advance tax
If your income varies (like freelance or business income), estimates are allowed. Small variations are acceptable, but major shortfalls can lead to penalties.
⭐ How to Pay Advance Tax Online
Advance tax is paid through the income tax challan system. The process is fully online:
- Choose Challan 280
- Select “Advance Tax”
- Enter PAN and assessment year
- Pay using net banking, debit card, or UPI
- Save the challan receipt carefully
The challan details automatically reflect in your tax records.
⭐ What Happens If You Don’t Pay Advance Tax?
Non-payment or short payment of advance tax leads to interest penalties, even if you later pay the full amount.
Two sections apply:
- Section 234B – for not paying advance tax at all or paying less than 90%
- Section 234C – for missing instalments or paying late
These interests are calculated monthly and can quietly increase your tax burden.
Many people only realise this while filing returns or after receiving a notice for missed filing or underpaid tax.
⭐ Advance Tax vs TDS (Key Difference)
Advance tax and TDS often confuse taxpayers, but they are different:
- TDS is deducted by someone else (employer, bank, client)
- Advance tax is paid by you directly
If TDS does not cover your full tax liability, advance tax becomes mandatory. Understanding TDS basics helps avoid this confusion.
⭐ Common Mistakes People Make
These mistakes often lead to penalties:
- Assuming advance tax is only for businesses
- Ignoring income from interest, rent, or capital gains
- Paying advance tax only in March
- Not adjusting TDS while calculating tax
- Forgetting challan details while filing return
Advance tax does not need to be perfect, but it must be reasonable and timely.
⭐ Advance Tax and ITR Filing Connection
Advance tax payments are adjusted while filing your income tax return. If you have paid excess advance tax, you can claim a refund. If you paid less, you must pay the balance along with interest.
Incorrect advance tax planning is a major reason people face confusion while filing returns or dealing with notices related to tax slabs and interest calculations.
🔚 Conclusion
Advance tax is a crucial but often ignored part of India’s tax system. If you earn income beyond salary or your tax liability crosses ₹10,000, understanding and paying advance tax on time can save you from interest penalties and unnecessary stress. A little planning during the year goes a long way in smooth tax compliance.
For clear, practical guidance on income tax, government rules, and official processes, visit Sarkari Bakery.