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Mastering Advance Tax: A Step-by-Step Guide to Calculation and Payment for FY 2024-25

March 15, 2025
Smart Money

Understanding Advance Tax Payments for Financial Year 2024-25

As the deadline for advance tax payments draws near, individuals and businesses alike must prepare for their financial responsibilities. The due date for paying advance tax for the Financial Year 2024-25 is March 15, and it is crucial for those with significant tax liabilities to understand the requirements to avoid penalties. Under current tax laws, individuals who anticipate a total tax liability of over Rs 10,000 for the year are required to pay advance tax according to a specified schedule.

What Is Advance Tax?

Advance tax refers to the income tax that is paid in advance, instead of at the end of the financial year. This is particularly common among high-income earners such as business owners and celebrities, who may face substantial tax liabilities. Understanding how to calculate and pay this tax is vital to staying compliant with tax obligations.

Steps to Calculate Advance Tax

Calculating your advance tax involves a series of systematic steps, ensuring accuracy to avoid financial penalties:

1. Estimate Your Income

Begin by estimating your total income for the financial year, which should encompass all sources of income. This includes:

  • Salary
  • Business profits
  • Professional fees
  • Capital gains
  • Rental income
  • Interest from savings or fixed deposits
  • Any other income sources

2. Apply Eligible Deductions

Next, apply all eligible deductions and exemptions as per the Income Tax Act. Various sections, such as 80C and 80D, allow for deductions that can help reduce taxable income. Be mindful of the differences between deductions available in the old and new tax regimes when making these calculations.

3. Calculate Your Tax Liability

Once you have an estimated taxable income, calculate the tax payable based on the applicable income tax slab rates. This will provide you with your initial tax liability.

4. Deduct TDS/TCS

If any portion of your income has had Tax Deducted at Source (TDS) or Tax Collected at Source (TCS), make sure to deduct these amounts from your total tax liability.

5. Determine Advance Tax Payable

If your resulting tax liability exceeds Rs 10,000, you will need to pay advance tax. The total advance tax amount should be divided into prescribed instalments as follows:

  • 15% by June 15
  • 45% by September 15
  • 75% by December 15
  • 100% by March 15

Consequences of Missing Advance Tax Payments

According to Ritika Nayyar, a partner at Singhania & Co., failure to pay advance taxes can lead to significant financial implications. Two primary sections of the tax law impose interest on unpaid advance tax:

Interest Under Section 234B

This interest provision applies if a taxpayer pays less than 90% of their total tax liability as advance tax. The interest rate is 1% per month on the shortfall, charged from April 1 of the assessment year until the date of payment.

Interest Under Section 234C

Section 234C addresses shortcomings in advance tax instalments. If taxpayers fail to pay the required percentage of advance tax by the designated due dates (June 15, September 15, December 15, March 15), they will incur interest at the rate of 1% per month on the deficient amounts.

How to Pay Advance Tax

Paying advance tax is a straightforward process. Here’s how you can do it online:

  1. Visit the Income Tax Department’s e-filing portal.
  2. Click on the ‘e-Pay Tax’ option found in the ‘quick links’ section.
  3. Enter your Permanent Account Number (PAN) and mobile number, and verify them by entering the OTP sent to your mobile device.
  4. Choose the appropriate tax category under ‘Income Tax’.
  5. Select the payment type and enter the tax amounts you need to pay.
  6. Opt for your preferred payment method, such as net banking, debit/credit card, or UPI.
  7. Review the details of the challan and click ‘pay now’ to finalize the transaction.
  8. Download and save the tax receipt for your records.

Understanding and preparing for advance tax payments well ahead of the March 15 deadline ensures compliance and helps you avoid unwanted financial repercussions. Proper planning and timely payments can contribute to smoother financial management in the upcoming financial year.