Advance Tax

Last Updated at: Oct 09, 2020
advance tax
The Government has recently allowed some relief to the businesses in response to the Covid-19 situation. In one such relief, the due date of the 1st instalment of the advance tax is extended till June 15th. No late fee is levied. Also, the interest payable against delayed payment is reduced from 1% to 0.75% a month, if the tax is paid by 30th June.


Advance Tax is nothing but the tax amount that you pay in advance than paying a hefty sum at the end of the fiscal year. This type of tax payment is applicable for all who have to pay a tax amount of Rs. 10,000 or higher in a year. As it is a type of tax, you need to pay it to the government throughout the year.

Advance Tax or ‘pay as you earn’ tax is the tax that is paid in advance as opposed to a lump sum payment at the end of the year. Advance tax is applicable to all taxpayers with a liability greater than Rs. 10,000 in a financial year.

Advance tax is paid to the government as it is earned, and is an endeavour of the government to receive a constant flow of tax receipts throughout the year, instead of a lump sum at the end of the year.

If you’re just looking around for related information on startups, government registrations, tax or legal documentation, check out the list of services we provide to make your interaction with government as smooth as is possible by doing all the legal documentation for you. We will also give you absolute clarity on the process to set realistic expectations.

Advance Tax Eligibility

The Income Tax department has set some eligibility criteria for collecting advance tax. Any individual/taxpayer:
1. With tax liability more than Rs. 10,000 per financial year;
2. Earning a salary or regular income from freelance work or business.

There is an exemption, too. Pensioners above the age of 60 years who do not have any earnings from a business are exempt from advance tax.

File Your Tax Returns

How is Advance Tax Paid?

For salaried individuals, the Advance Tax is deducted at source, by the employers, every month and paid quarterly to the income tax department. The Advance Tax deducted is reflected in the Form 16 supplied by the employers during the tax filing.

As for the business men and others in the profession, advance tax needs to be paid by reference to the rules laid by the Income Tax Department. The time limits given for advance tax filing are as follows:

The scheduled dates of Advance Tax payments are the same every year, to allow taxpayers to adhere to them strictly. It will be the same for the current financial year, 2016-17, too.

Although, until 2014-15, the calculation and percentage of advance tax for companies and other assesses were different, the income tax department has standardised rates since 2015-16, and hence, the above table of percentage as well as the submission dates remains the same for companies and assesses other than the companies.

How to calculate the Advance Tax?

Since you need to pay this tax as you earn, and thus, you will not have anything to compare, it is essential to understand how to estimate and pay the advance tax every year.

Here are a few ways in which you can estimate your Advance Tax.

Estimate Annual Income: Estimate the annual income by including income from salary, from interests, capital gains and so on that your business will gain in the year. For freelancers, estimated income from all clients can be included.

Subtract the expenses: Freelancers can subtract any expenses such as electricity bills, work place rent and so on, from the estimated annual income

Deductions: Also subtract the deductions from investments under Section 80C, 80D, 80E or anything else eligible for tax deductions.

Calculate total tax: From the annual income thus calculated, you can, by comparing the income tax slab rates, calculate your tax liability for the financial year. Now, deduct any TDS, and pay the installments according to the calculated annual income tax to be paid.

Advance tax can be paid through the official website. Challan 280 needs to be filled before paying your advance tax installments online.

Well, if you want to pay advance tax to the government, then you need to meet the eligibility criteria set by the Income Tax department. Firstly, you need to pay over Rs. 10,000 tax per fiscal year. The other condition is that you should earn a regular income from business or freelancing work or salary. Moreover, pensioners cannot pay advance tax.

A lawyer with 14 years' experience, Vikram has worked with several well-known corporate law firms before joining Vakilsearch.