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Everything to know about Advance Tax

As you might have guessed, Advance Tax is a “pay-as-you-earn” scheme for the periodical payment of your yearly tax in advance. Advance Tax needs to be paid if your Tax Liability is INR 10,000 or more. Advance Tax can be paid in 4 equal installments at equal time gap.

Lets learn more about the Advance Tax…

Why Advance Tax?

Believe it or not, Advance Tax is gaining more popularity than you think. Since last Financial Year, Advance Tax collection from Individuals rose from INR 24,000 Crore. to INR 33,000 Crore. That is nearly 37.5 % increase from the previous Financial Year.

However, the Corporate Advance Tax took a free fall of 5.2% in December 2019. Since FinMin, slashed the corporate Tax rate to 22%, economists predicted a strong possibility of increased Advance Tax collection. But, as the Murphy’s Law states, “anything that can go wrong, will go wrong“, and it did go all wrong for the Indian Stock Markets and the Economy. Advance Tax payment by companies was reduced by INR 4,000 Crore.

Advance Tax has multi-faced benefits. Not only the Government gets its Tax Revenues throughout the year, but also it helps mitigate the Tax Burden on taxpayers at end of every Financial Year.

Fun Fact: Investors in the Stock Markets often use the publicly available information of the Advance Tax payments for companies to gauge upcoming quarterly results. Studying the company’s normal Tax rate, they work back to guess possible profits by comparing it with profits in past years.

Advance Tax Calculator
Add Incomes & Deductions to know your Advance Tax Liability for all quarters in a jiffy
Advance Tax Calculator
Add Incomes & Deductions to know your Advance Tax Liability for all quarters in a jiffy

Who needs to pay Advance Tax?

Advance Tax is required to be paid by Individuals/corporate taxpayers if their Tax Liability is INR 10,000 or more. Keep in mind, Salaried individuals don’t have to pay advance tax as employers deduct their TDS. Advance Tax is therefore only applicable to non-salary sources of income (including income from Rent, Capital Gains, Business or Profession). However, Salaried Individuals are liable to pay advance tax if TDS is not deducted or incorrectly deducted.

Some of these non-salary income sources are:

Also, worth noting that self-employed individuals, businessmen, corporates and companies too need to pay Advance Tax.

When to pay Advance Tax?

Advance Tax (for Individuals and Corporate Taxpayers) can be paid on a quarterly basis as per the dates below:

Due Date of Installment Amount Payable
On or Before 15th June 15% of the Advance Tax
On or Before 15th September 45% of the Advance Tax
On or Before 15th December 75% of the Advance Tax
On of Before 15th March 100% of the Advance Tax

Advance Tax for Individuals who have opted for Presumptive Taxation under section 44AD and 44ADA -Business and Professional Income

Due Date Advance Tax Payable
On or Before 15th March 100% of the Advance Tax

Advance Tax for Traders

In case of Traders, it is generally difficult to project their income. They have two approaches on hand:

Approach 1

Traders can pay Advance Tax at the end of each quarter by estimating their trading income. Depending on the actual Tax Liability, traders could obtain a refund (if their Advance Tax payment is more than actual Tax Liability). However, in case the Trader estimated his Tax Liability less than the actual Tax Liability, a penalty of 1% on the differential amount has to be paid u/s 234C.

Approach 2

Since Traders can’t estimate their trading income, they can pay advance tax on the due date of last quarter i.e, 15th March. In this case, if advance tax paid is less than the actual tax liability, penal interest u/s 234C will be levied for all 4 quarters.

For Traders who are planning to pay Advance Tax, it is suggested that they check for any Unrealised Losses. These Unrealised losses can be sold and be made Realised Losses which can further be set off against Realised Profit to reduce their Tax Liability. This Concept is called Tax Loss harvesting

All in all, Advance Tax is one of those few methods of paying Taxes which have multiple benefits. We feel that, as and when the taxpayers start to realize this, the number of people paying Advance Tax will increase steadily. It is also possible that Advance Tax becomes the main medium for the Income Tax Department for collecting Taxes.

It is a wild guess, but…any thing that can happen, will happen!!

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Got Questions? Ask Away!

  1. Hey @Shweta_Saini

    Advance tax is a ‘Pay as you earn’ tax, so it is required to be paid during the financial year in four different instalments in case your Taxable Liability is more than INR 10,000 for the financial year which stands true for you.

    The due dates for advance tax installments are:

    • 15th June - 15% of the tax liability
    • 15th Sept - 45% of the tax liability
    • 15th Dec - 75% of the tax liability
    • 15th March - 100% of the tax liability

    If you are eligible to pay advanced tax but have not paid advance tax, the penalty will be applicable u/s 234B and 234C.

    Let us know if you have any further questions!

  2. Hi Team, I had assumed that I will be able to pay advanced tax before March because I thought I could go for presumptive tax filing. But now it looks like I cannot opt for a presumptive taxation scheme. So does it mean that I did not pay the advanced quarterly tax that I was supposed to pay?

    If yes, what is the penalty in every case or are there some exceptions to avoid this interest penalty?

    Thanks in advance!

  3. Avatar for Yesha Yesha says:

    Hey @riya_gupta

    You will be charged an interest penalty under section 234C for the delay/non-payment of advance tax during the year @1% per month on the shortfall amount. Additionally, under Section 234B a penalty interest is imposed on the taxpayers in case the advance tax payment is less than 90% of assessed tax liability during the year.

    You can avoid interest u/s 234B by paying at least 90% of your assessed tax liability by March 15, 2021.

    Hope this helps!

  4. Hey @TeamQuicko

    I have LTCG of more than 7 lakhs from the equity for this year. Is there a way to reduce my tax liability? Also, do I have to pay the tax in advance? If I fail to do so, what will be the penalty/interest percentage I have to pay during my tax filing in 2020?

  5. Hey @ViraajAhuja47, you can set off against non-speculative business loss like F&O for the current year. Long-term capital losses for the previous as well as the current year. Yes, you are required to pay advance tax in case your tax liability is more than INR 10,000 for the FY. The penalties for non-payment of advance tax are:

    Non-payment of Advance Tax u/s 234B 3: Interest at 1% in case the taxpayer fails to pay 90% of the tax liability in the same FY
    Delay in Payment of Advance Tax u/s 234C 1: if there is a delay in tax payment than interest @ 1% is applicable.

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