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Understanding Advance Tax Payment in India for 2024-25

Published on 8th june 2024, By CA. Rakesh Oswal                       

Paying taxes is a vital part of being a responsible citizen and contributing to the nation’s development. One crucial aspect of the tax system in India is advance tax. For the financial year 2024-25, understanding how to calculate and pay advance tax can help individuals and businesses manage their finances better and avoid penalties. This guide will provide a comprehensive overview of what advance tax is, who needs to pay it, and the steps involved in making advance tax payments.

What is Advance Tax?

Advance tax is the payment of your income tax liability in installments throughout the financial year rather than paying a lump sum at the end of the year. It is also known as the “pay-as-you-earn” tax. The idea behind advance tax is to reduce the burden of a single, large tax payment and to ensure a steady inflow of revenue for the government.

Who Needs to Pay Advance Tax?

Advance tax must be paid by:

  • Individuals: Salaried individuals with significant income from sources other than salary, such as rent, capital gains, or business income.
  • Self-employed Professionals: Freelancers, doctors, lawyers, and other professionals with taxable income.
  • Businesses: Small businesses, partnerships, and large corporations.
  • Companies: All types of companies with taxable income.

You are required to pay advance tax if your total tax liability for the financial year is ₹10,000 or more. This rule applies to income from all sources, including salary, business profits, investments, and other taxable income.

Advance Tax Payment Schedule for 2024-25

The advance tax for the financial year 2024-25 needs to be paid in four installments. Here’s the schedule:

  1. 1st Installment: By June 15 – 15% of the total tax liability
  2. 2nd Installment: By September 15 – 45% of the total tax liability (cumulative)
  3. 3rd Installment: By December 15 – 75% of the total tax liability (cumulative)
  4. 4th Installment: By March 15 – 100% of the total tax liability

How to Calculate Advance Tax?

Calculating advance tax involves estimating your total income for the year, subtracting eligible deductions, and applying the current tax rates. Follow these steps:

  1. Estimate Your Total Income: Calculate your total income from all sources, including salary, business income, capital gains, rental income, and any other taxable income.
  2. Subtract Deductions: Deduct eligible amounts under sections like 80C (investments), 80D (medical insurance), etc.
  3. Compute Taxable Income: Subtract deductions from your total income to get your taxable income.
  4. Calculate Tax Liability: Apply the applicable tax rates to your taxable income to determine your total tax liability.
  5. Subtract TDS: Deduct any tax that has already been deducted at source (TDS) from your total tax liability.
  6. Determine Advance Tax: The remaining amount is what you need to pay as advance tax. Divide this amount as per the installment schedule.

How to Pay Advance Tax?

Paying advance tax is straightforward and can be done both online and offline.

Online Payment:

  1. Visit the official Income Tax Department website or your bank’s online portal.
  2. Select the option to pay advance tax.
  3. Fill in the required details like PAN, assessment year, type of payment, and the amount.
  4. Choose your bank and make the payment. You will receive a receipt for your payment.

Offline Payment:

  1. Visit a designated bank branch.
  2. Fill out the advance tax payment challan (Challan 280).
  3. Submit the filled challan along with the payment at the bank.
  4. The bank will provide you with a stamped receipt. Keep this receipt for your records.

Benefits of Paying Advance Tax

  1. Avoid Interest Penalties: Paying advance tax on time helps you avoid interest penalties under Sections 234B and 234C of the Income Tax Act, which can be substantial.
  2. Better Financial Management: Spreading your tax payments over the year helps in better financial planning and reduces the burden of a large, lump-sum payment.
  3. Timely Compliance: Ensures timely compliance with tax laws, maintaining a good standing with tax authorities and avoiding last-minute hassles.

Common Mistakes to Avoid

  1. Incorrect Estimation: Ensure you correctly estimate your income and deductions to avoid underpayment or overpayment of advance tax.
  2. Missing Deadlines: Mark advance tax deadlines on your calendar to avoid missing them.
  3. Not Keeping Records: Always keep receipts and records of your advance tax payments for future reference and verification.

Conclusion

Advance tax payment is a crucial aspect of tax compliance in India. By understanding the requirements, calculation methods, and payment processes for the financial year 2024-25, taxpayers can manage their finances more efficiently and avoid penalties. Make sure to plan ahead, keep accurate records, and stay informed about any changes in tax laws. Paying advance tax on time not only helps in better financial management but also contributes to the nation’s development by ensuring a steady flow of revenue for public services and infrastructure.

Stay compliant, stay informed, and make your advance tax payments timely to enjoy a hassle-free tax experience.

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