What is Advance Tax?
Advance tax is the income tax payable if your tax liability exceeds ₹10,000 in a financial year. Instead of paying a lump sum at year-end, the Income Tax Department requires you to pay it in quarterly installments. This applies to freelancers, professionals, and businesses—but usually not to salaried employees whose employers already deduct sufficient TDS.
How It Works
Your advance tax is calculated in four steps:
- Estimate your total annual income (from all sources like business, capital gains, interest).
- Calculate your total expected tax liability on that income.
- Deduct any TDS (Tax Deducted at Source) already paid.
- If the remaining liability exceeds ₹10,000, you must pay it in specific quarterly percentages.
Formula Verified
Official Calculation Formula
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Payment Schedule (Individual Taxpayers)
- 15% of advance tax by 15th June
- 45% of advance tax by 15th September
- 75% of advance tax by 15th December
- 100% of advance tax by 15th March
Penalties for Missing Due Dates
If you fail to pay the required installment by the due date, you are liable to pay interest under Section 234B and Section 234C at 1% per month on the shortfall.