What are the benefits of paying advance tax?

Paying advance tax helps avoid penalties under Sections 234B and 234C of the Income Tax Act, allows for better financial management by spreading tax payments throughout the year, and contributes to national development by providing the government with a steady revenue stream.

What is the installment schedule for advance tax payments for FY 2024-25 (AY 2025-26)?

The installment schedule is: June 15th (at least 15%), September 15th (at least 45%), December 15th (at least 75%), and March 15th (100%) of the estimated advance tax liability. Note that those under presumptive taxation (Section 44AD or 44ADA) must pay the entire amount by March 15th.

How can I pay advance tax online?

You can pay advance tax online through the Income Tax Department's e-payment portal (https://www.incometax.gov.in/). Select 'e-Pay Tax', choose the correct assessment year and 'Advance Tax' as the payment type, and then proceed with payment via net banking or credit/debit card.

What happens if I don't pay advance tax or pay an insufficient amount?

You may be subject to penalties under Sections 234B and 234C of the Income Tax Act. These penalties are levied on taxpayers who fail to pay advance tax or do not pay enough as per the installment schedule.

Avoiding Penalties: A Practical Guide to Advance Tax Payments

Understanding Advance Tax: A Complete Guide

Advance tax, as the name suggests, is paying your income tax in advance, rather than in a lump sum at the end of the financial year. It's applicable to individuals and businesses whose estimated tax liability for the year exceeds ₹10,000. Think of it as paying your taxes in installments, helping the government continue a steady flow of revenue throughout the year.

Who is Required to Pay Advance Tax?

The obligation to pay advance tax mostly falls on:

Salaried Individuals: If your total tax liability, after considering TDS (Tax Deducted at Source) from your salary, exceeds ₹10,000.
Self-Employed Professionals: Doctors, lawyers, consultants. Also, other professionals are required to pay advance tax if their estimated tax liability exceeds ₹10,000.
Businesses: Companies, partnerships, and sole proprietorships are all subject to advance tax if their estimated tax liability is above the threshold.
Freelancers: With the gig economy booming, freelancers also need to assess their income and pay advance tax if applicable.

Why is Advance Tax Important?

Paying advance tax isn't just about complying with the law; it offers several benefits:

Avoid Penalties: The most significant advantage is avoiding penalties under Section 234B and 234C of the Income Tax Act. These penalties are levied on taxpayers who fail to pay advance tax or pay it in insufficient amounts.
Manage Finances Better: Spreading your tax payments throughout the year can ease the financial burden compared to a large, unexpected payment at the end.
Contribute to National Development: Advance tax contributes to the government's revenue stream, enabling it to fund different public welfare projects and infrastructure development.

Calculating Your Advance Tax Liability

Estimating your income and tax liability is the first step. This requires careful consideration of all sources of income, including salary, business profits, capital gains, rental income. Also, income from other sources. Deductible expenses and investments under different sections of the Income Tax Act (like 80C, 80D, etc.) should also be factored in.

Understanding the Installment Schedule

Advance tax is payable in installments, with specific due dates and percentage requirements. Here's the schedule for FY 2024-25 (Assessment Year 2025-26):

On or before June 15th: At least 15% of the estimated advance tax.
On or before September 15th: At least 45% of the estimated advance tax (inclusive of the 15% paid in the first installment).
On or before December 15th: At least 75% of the estimated advance tax (inclusive of the 45% paid in the previous installments).
On or before March 15th: 100% of the estimated advance tax.

Here's the thing: Note: If you are covered under section 44AD or 44ADA and have opted for presumptive taxation, you are required to pay the entire amount of advance tax in a single installment on or before March 15th.

Case Calculation

Let's say your estimated total income for the financial year is ₹8,00,000. After considering deductions under Section 80C (₹1,50,000) and Section 80D (₹25,000), your taxable income becomes ₹6,25,000.

Applying the applicable income tax slabs for individuals (assuming the old regime for simplicity):

Up to ₹2,50,000: Nil
₹2,50,001 to ₹5,00,000: 5% of (₹5,00,000 - ₹2,50,000) = ₹12,500
₹5,00,001 to ₹6,25,000: 20% of (₹6,25,000 - ₹5,00,000) = ₹25,000

Total Income Tax: ₹12,500 + ₹25,000 = ₹37,500

Add Health and Education Cess @ 4%: 4% of ₹37,500 = ₹1,500

Total Tax Liability: ₹37,500 + ₹1,500 = ₹39,000

In fact, In fact, Since your estimated tax liability exceeds ₹10,000, you are required to pay advance tax. You would need to pay the installments according to the schedule mentioned above.

How to Pay Advance Tax Online: A Step-by-Step Guide

Paying advance tax online is a straightforward process. Here's how you can do it:

Step 1: Access the Income Tax e-Payment Portal

Go to the official website of the Income Tax Department: https://www.incometax.gov.in/. Handle to the 'e-Pay Tax' section.

Step 2: Select Assessment Year and Payment Type

Choose the correct assessment year (e.g., 2025-26 for FY 2024-25). Under 'Tax Applicable', select 'Income Tax'. Then, under 'Type of Payment', select '(100) Advance Tax'.

Step 3: Choose Mode of Payment

You can pay advance tax through net banking or credit/debit card. Select your preferred mode of payment. Make sure you have sufficient funds or credit limit before proceeding.

Step 4: Enter Taxpayer Information

Provide the necessary details, including your PAN (Permanent Account Number), name, handle. Also, other relevant information. Double-check the accuracy of the information before proceeding.

Step 5: Make the Payment

Follow the on-screen instructions to complete the payment process. If you're using net banking, you'll be redirected to your bank's website. If you're using a credit/debit card, enter your card details securely.

Step 6: Download and Save the Challan

So, After successful payment, you'll receive a challan (ITNS 280) containing the payment details, including the BSR code, challan serial number. Also, the amount paid. Download and save this challan for your records. This is proof of your advance tax payment and will be required when filing your income tax return.

Consequences of Not Paying Advance Tax

You see, Failing to pay advance tax or paying it in insufficient amounts can result in penalties under Sections 234B and 234C of the Income Tax Act.

Section 234B: Penalty for Default in Payment of Advance Tax

Here's the thing: This penalty is levied if you haven't paid at least 90% of your assessed tax as advance tax. The penalty is calculated at 1% per month or part of a month on the shortfall amount from April 1st of the assessment year until the date of payment of the entire tax.

Section 234C: Penalty for Deferment of Advance Tax

This penalty is applicable if you fail to pay the advance tax installments according to the prescribed schedule. The penalty is usually 1% per month or part of a month on the defaulted amount for the period of delay.

Tips for Effective Advance Tax Planning

Accurate Income Estimation: Take the time to accurately estimate your income for the entire financial year. Think about all sources of income and potential fluctuations.
Regular Monitoring: Monitor your income and expenses throughout the year to make sure your advance tax estimates remain accurate.
Seek Professional Advice: If you're unsure about calculating your advance tax liability or managing the complexities of tax laws, consult a qualified tax advisor.
Keep Records: Keep proper records of all income, expenses. Also, advance tax payments. This will simplify the tax filing process and help you avoid errors.

Conclusion

Paying advance tax is an essential aspect of responsible financial management and tax compliance. By understanding the rules, calculating your liability accurately. Also, paying installments on time, you can avoid penalties and contribute to the nation's development. Don't wait until the last minute; start planning your advance tax payments early in the financial year.