Understanding Advance Tax: Are you liable?

Advance tax is a part of tax payable before the end of the financial year. In other words, tax paid in the same year in which you receive your income. This piece will tell you everything you need to know about advance tax

advance tax

Paying taxes can seem a hassle and a sudden burden on your finances. This is where advance tax comes in; it lets you spread the repayment across the year rather than let it pile up at the end. Advance tax is simply the payment of your tax in instalments and it is mandated by law. Instead of paying at the end of the year, you pay a portion of the tax you owe once every three months. 

Who has to pay advance tax?

Anyone who has a tax liability in a financial year of Rs. 10,000 or more is liable to pay advance tax. This includes individuals, Hindu undivided families (HUFs), and companies. Tax liability can arise on different types of income. It can be on your salary, profits from business, rent, bank FD interest, or capital gains on shares and mutual funds.

You must take TDS (Tax Deducted at Source) into account while computing your tax liability. For instance, if you have only salary income and your employer is deducting the tax that is due from you, you do not have to pay advance tax.

Related: Things you didn't know about tax savings 

How to calculate advance tax?

Income from other sources: Determine the income from other unplanned sources such as winnings from lottery, online competitions, TV shows, etc.

Deduct your expenses: Expenses related to work such as freelancing, rent paid for workplace, travel expenses, internet and phone costs.

Add up your income: Total your income received in the form of rent, interest income, etc. and minus the TDS that has been already deducted from your salaried income

Advance tax: If the tax amount is above Rs.10,000 and you are liable to pay advance tax

advance tax

Related: How is taxable income calculated?

You must make an estimate of the tax you will owe in a year and divide it into these instalments. If you receive unexpected income in the course of the year, such as a bonus, you can adjust your estimates accordingly in the quarter in which the income falls.

Related: Income Tax Returns: Who should file them and when?

How do you pay?

You can pay advance tax online at www.tin-nsdl.com. Simply select the assessment year (this is the year following the financial year in which you receive the income), enter your PAN, and select the advance tax challan code (100). Your name will appear in the next screen to confirm your identity. If the correct name doesn’t appear, it means you’ve entered the wrong PAN.

Once all details are correctly entered, you will be directed to your bank’s website. Log on to netbanking, enter the amount you wish to pay, and confirm the transfer. Alternatively, you can also make the payment by visiting a bank branch and filling up the advance tax challan.

Related: Tax planning tips for every age group

What if you don’t pay on time?

Failure to pay advance tax on time makes you liable to pay simple interest on the late amount at 1% per month. For example, if you have a tax liability of Rs. 20,000 on June 15 and only manage to pay this amount by August 15, you’re liable to pay an interest of Rs. 400 (1% simple interest for two months) for the delayed payment.

Are senior citizens exempt?

Senior citizens (those aged 60 and above) are not liable to pay advance tax if they satisfy these two conditions:

They are resident Indian citizens (not NRIs)
They do not have any income from a business or profession

Related: How advance tax can help you stay on track with tax payments


Paying advance tax is a legal requirement. Spreading it over the year can lessen a headache. Make an estimate of your tax liability at the beginning of the year and pay your installments accordingly. Don’t forget to factor in TDS while making your estimates and use netbanking for payment – this can greatly reduce the time and effort required.

Disclaimer: This article is intended for general information purposes only and should not be construed as tax or legal advice. You should separately obtain independent advice when making decisions in these areas.


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