Summary: Under the Income Tax Act, 1961, advance tax is payable on income for the upcoming assessment year if the tax liability exceeds ₹10,000. This includes all income sources, such as capital gains and lottery winnings. However, residents aged 60 or above, with no business income, are exempt from this requirement. Advance tax is typically paid in four installments: 15% by June 15, 45% by September 15, 75% by December 15, and the full amount by March 15 of the financial year. For those declaring income under Sections 44AD or 44ADA, 100% of the advance tax is due by March 15. Failure to pay 90% of the assessed tax by the end of the financial year results in an interest penalty of 1% per month under Sections 234B and 234C. For instance, if an installment is missed and paid later, interest is calculated based on the shortfall. Taxpayers should carefully estimate their income and adjust subsequent payments to avoid penalties or overpayment.
Introduction: Under the Income Tax Act, 1961, there is a provision for payment of tax in advance. Advance tax shall be payable on all the items of income included in the total income chargeable to the tax for the assessment year immediately following the financial year in which advance tax is payable. This would mean that:(a) capital gains, and (b) income referred to in section 2(24) (ix) i.e. winnings from lotteries, crossword puzzles, races including horse races, card games, other games, gambling or betting, will not be excluded from the total income for the purposes of computation of advance tax income chargeable to tax will be liable to payment of advance tax. [Section 207(1)].
It may be noted that the provision of section 207(1), w.e.f. 1st April, 2012, shall not apply to an individual resident in India, who does not have any income chargeable under the head “Profit and gains of business or profession”, and is of the age of 60 years or more at any time during the previous year [Section 207(2)]. Accordingly, such an individual is not required to pay advance tax during financial year 2012-13 and subsequent year.
Under section 208 it is obligatory to pay advance tax during the financial year in every case where the advance tax payable is Rs. 10,000 or more. Thus if the advance tax payable is less than Rs. 10,000 there would be no obligation on the part of any assesse to pay advance tax. (Section 208).
When Advance tax payable?
(1) In the case of all the assesse other than the assesses referred in (2), shall be liable to pay advance tax in four instalments during each financial year. The due date for payment and the amount payable in each instalment during financial year is indicated in the following mode.
| Due date of Instalment | Amount Payable |
| 01. On or before 15 th June | Not less than 15% of such advance tax |
| 02. On or before 15 th Sept. | Not less than 45% of such advance tax, as reduced by the amount if any, paid in the earlier instalment. |
| 03. On or before 15 th Dec. | Not less than 75% of such advance tax, as reduced by the amount or amounts, if any paid in the earlier instalment or instalments. |
| 04. On or before 15 th March | The whole amount of such advance tax as reduced by the amount or amounts, if any, paid in the earlier instalment or instalments. |
(2) In the case of an assesse who declares profits and gains in accordance with the provisions of Section 44AD (1) and Section 44ADA(1), as the case
may be:
From 1st April, 2017, provides that an assesse who declares profits and gains in accordance with the provisions of section44AD(1) or Section 44ADA(1) as the case maybe, is require to pay 100% of the advance tax, on the current income during the financial year.
Illustration: Mr. Atul Shah, aged 56 years estimates his total income for the financial year 2024-25, under various
year as under:
| Business Income | Rs. 6,30,000 |
| Property Income (Rent) | Rs. 90,000 |
| Interest Income on deposit (TDS 2,000) | Rs. 20,000 |
| Dividend (TDS 5,600) | Rs. 60,000 |
| Gross Total Income | Rs. 8,00,000 |
| Less Deduction under Chapter VI-A PPF | Rs. 1,00,000 |
| Income subject to Advance Tax | Rs. 7,00,000 |
| Income tax & addl. S.C. | |
| (i.e. Health and Edu. Cess) on current income Rs.54,600
LESS: TDS on interest 2,000 & Dividend 5,600 Rs. 7,600 |
|
| Advance tax Payable during FY 2024-25 | Rs. 47,000 |
| Mr. Atul Shah has to pay advance tax of Rs. 47,000 in
four instalments as specified below: |
|
| On or before 15 th June, 2024 15% | Rs. 7,050 |
| On or before 15 th Sept. 2024 45% | Rs. 14,100 |
| On or before 15 th Dec. 2024 75% | Rs. 14,100 |
| On or before 15 th March 2025 whole | Rs. 11,750 |
| Total | Rs. 47,000 |
Interest chargeable for defaults in payment of Advance Tax:
Where the assesse fails to pay advance tax which he is liable to pay or where the advance tax paid is less than 90% of the assessed tax, he shall be liable to pay simple interest at the rate of1% for every month or part of a month, comprised in the period from 1st April next following the financial year in which the advance tax was payable to the date of determination of total income u/s 143(1) and where regular assessment is made, to the date of such regular assessment. The interest shall be chargeable on the entire amount of the assessed tax for failure to pay advance tax or, as the case may be, on the difference between the assessed tax and the advance tax paid.
Suppose, in the above example, if Mr. Atul has not paid 2nd instalment of advance tax of Rs. 14,100 before 15th September and paid Rs. 28,200 on 14th December, is liable to pay interest of 3 months on Rs. 14,100 i.e. Rs. 423, 141 per month for 3 months.
If any amount is paid after 31st March, interest will be calculated under section 234C and before that it will be under section 234B.
Calculate your expected income carefully and pay the advance tax accordingly. Say after six month your business expanded and income is increase, pay the remaining instalment according to increase income and save interest. If the situation is reverse, do not pay remaining instament, so you need not wait for refund.
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