Pay advance tax now: A guide on calculating, filing, and its importance

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Advance tax is based on the principle of paying taxes as you earn your income. Photo: Shutterstock

Hope you have paid the fourth installment of advance tax. If not, do it now! As we approach the final due date for the fourth installment of advance tax on March 15, 2024, for the financial year 2023-24, it’s crucial for those who haven’t yet settled their dues to act swiftly. Not adhering to this deadline can lead to penalties in the form of interest under sections 234B and 234C of the Income Tax Act due to non-payment or underpayment of advance tax.

Here’s all you need to know about advance tax

Advance tax is essentially the payment of income tax in portions throughout the financial year, rather than a single lump sum at the end. It’s based on the principle of paying taxes as you earn your income. The Income Tax Department mandates these payments to be made according to specified installments and deadlines.

Who must pay advance tax?

Employees, freelancers, and businessman: If your total tax liability exceeds Rs 10,000 in a financial year, you’re required to pay advance tax. This rule is applicable to everyone—whether you’re a salaried employee, a freelancer, or a business owner.

Senior citizens: Individuals aged 60 and above, who do not have income from business, are exempt from this provision. However, senior citizens with business income are required to pay advance tax.

Presumptive income taxpayers: Businesses and professionals opting for the presumptive taxation scheme under sections 44AD and 44ADA must pay their entire advance tax in a single installment by March 15 or by March 31.

Calculate advance tax

Let’s understand the calculation with the help of an example from Cleartax. Simran is a freelancer earning income from the profession of voiceover artist. For the FY 2023-24, Simran estimates her annual gross receipts at Rs 20,00,000. She estimates her expenses at Rs 12,00,000. Simran has deposited Rs 40,000 in PPF account. Simran has also paid Rs 25,000 towards the LIC premium. Further, She has paid Rs 12,000 towards the medical insurance premiums. Professional receipts of Simran are subject to TDS. She estimates a TDS of Rs 30,000 on certain professional receipts for the FY 2023-24. Besides professional receipts, Simran estimates an interest of Rs 10,000 on fixed deposits held by her. Simran’s advance tax liability would be: Rs 31,464

How to pay advance tax online

1. Access the portal: Visit the official e-filing portal of the Income Tax Department.

2. Quick links: Navigate to ‘e-Pay Tax’ under the Quick Links section or use the search bar.

3. Enter details: Provide your PAN, mobile number, and the OTP received.

4. Tax selection: Choose ‘Income Tax’ and specify the Assessment Year as 2024-25 and Type of Payment as ‘Advance Tax (100)’.

5. Fill in tax details: Enter the necessary tax information.

6. Payment method: Choose your bank and proceed with payment.

7. Challan confirmation: Review and pay. Save the acknowledgement for future reference.

Consequences of late or non-payment of advance tax

Interest for non-payment (Section 234B): Failing to pay at least 90% of your total tax dues as advance tax by March 31 will attract an interest charge of 1% per month on the shortfall.

Interest for delayed payment (Section 234C): Delays in adhering to advance tax payment schedules also result in penal interest.