Advance Tax: Who Must Pay It and How to Calculate Correctly

Most salaried employees are familiar with TDS – tax deducted at source by their employer. But there’s another tax payment mechanism that many people, particularly freelancers, business owners, and those with significant investment income, must deal with: Advance Tax.

What Is Advance Tax?

Advance Tax is income tax paid in installments during the financial year itself, rather than in a lump sum after the year ends. It’s called “pay as you earn” taxation. The concept is simple: why wait until March 31st to pay tax on income you’ve already earned throughout the year?

Who Must Pay Advance Tax?

You must pay advance tax if your estimated tax liability after TDS for the year exceeds ₹10,000. This typically applies to:

• Freelancers and self-employed professionals.
• Business owners.
• Salaried individuals with significant capital gains, interest income, or rental income.
• Senior citizens (above 60) with business income are not exempt.

Advance Tax Due Dates and Installments

• June 15: Pay at least 15% of estimated annual tax.
• September 15: Pay at least 45% of estimated annual tax (cumulative).
• December 15: Pay at least 75% of estimated annual tax (cumulative).
• March 15: Pay 100% of estimated annual tax (cumulative).

Penalty for Non-Payment

If advance tax is not paid on time, interest under Section 234C is levied at 1% per month on the shortfall for each installment period. Section 234B applies if less than 90% of total tax is paid before March 31st.