How to Pay Advance Tax

Introduction to what advance tax means, and if you owe advance tax, how to pay it to IT department

Introduction

Income tax is commonly deducted at source by the entity (employer, banks etc.) while making a payment to the taxpayer in any form (salary, interest, income from profession etc.).

This is known as TDS (Tax Deducted at Source) and is generally reflected in Form 26AS every financial year/ assessment year.

For example, if an employer has paid 1,000,000₹1,000,000 in salary over the year to an employee, then depending on tax saving investments for the employee, the employee might be liable for, say, 80,000₹80,000 in taxes. This entire 80,000₹80,000 would have ideally been deducted by the employer, as TDS, and deposited to income tax department. In particular, the TDSPC (TDS Processing Cell).

However, the taxpayer might have other sources of income on which no tax has been deducted. Or, adding up the income from multiple sources would probably put them in a different tax bracket with extra tax liability; that neither entities might know about.

Examples include:

  • Capital Gains from sale of stocks or mutual fund units, or selling house / real estate

  • Rental income

  • Freelance/business income

  • Income from bank deposits

In such cases, the responsibility lies on the taxpayer to compute their tax liability in advance and pay it to the government directly; as advance tax.

However, it's also not enough to just pay the total tax owed to the Income Tax department, by end of the financial year.

As it happens, one needs to also pay the right tax based on estimate of gross income for the whole year, before the right dates (advance tax deadlines) in a financial year.

When to pay the Advance Tax

Based on prevailing Indian tax law and IT act, it's generally supposed to be paid on a quarterly basis.

The advance tax must be computed and paid based on the tax slab, to which the taxpayer belongs, if the overall tax liability is greater than ₹10,000 in a financial year.

Due Date

Tax payable

On or before 15th June

15%15\% of liability

On or before 15th September

45%45\% of liability, minus tax already paid

On or before 15th December

75%75\% of liability, minus tax already paid

On or before 15th March

100%100\% of liability, minus tax already paid

Note

  • For freelancers and other non-salaried professionals, 100%100\% of tax must be paid on or before 15th March.

  • If advance tax is not paid, interest may be charged on the tax liability under sections 234B and 234C of the Income Tax Act.

  • For senior citizen (more than 75 yr old), if only pension and income from bank interest are only the 2 sources of income, the bank will deduct the TDS and no need to file ITR (Income Tax Return).

Steps for Payment

Challan number to be selected on the income tax portal - Dark mode
Challan number to be selected on the income tax portal - Light mode
  • Select (0021) Income Tax (Other than companies) under Tax Applicable.

  • Select (100) Advance Tax under Type of Payment

Type of Payment - Dark mode
Type of Payment - Light mode
  • Select the mode of payment, enter your PAN, assessment year and other details. Assessment Year (AY), is usually one year ahead of Financial Year (FY). For example, if it's advance tax for FY20-21, then that should be selected as AY21-22.

  • Make the payment with Netbanking or Debit card or UPI (as applicable), and keep a copy of the tax receipt /challan, which has details such as

    • BSR Code

    • Tender Date

    • Challan No.

See below for a sample counterfoil after advance tax has been paid.

Tax Payer Counterfoil - Dark mode
Tax Payer Counterfoil - Light mode

This will be useful at the time of filing of tax returns where details of advance tax paid should be entered. However, ideally, if the transaction and payment were successful, you should see your 26AS statement updated in a few days after paying advance tax, reflecting the amount. This would also be auto-filled in your ITR, during return filing.

Wrap Up

One might wonder, if there's any value in paying taxes in advance. Why can't we just pay it during filing returns? Section 234, in particular section 234B and section 234C, deal with penalties of not paying right taxes at the right time. Rest assured, if you owe the Govt. any taxes, you'd have to pay it. If you don't do it on time, you'd be paying that with exorbitant interest as penalty for late payment. If you've any concerns over how to estimate advance taxes, it's prudent to do a tax planning at the beginning of the financial year, and review that once a quarter. If needed, it's of extreme value to employ a tax professional for a fee. Might save you a lot of headache and surprises down the line.

You might want to refer to some online articles or posts about more details on this process, and various corner-cases. Here are a few examples, provided below.