Advance Tax vs Self-Assessment Tax: Key Differences Explained
- PRITI SIRDESHMUKH
- 6 days ago
- 9 min read
Understanding the difference between advance tax and self-assessment tax is crucial for every Indian taxpayer. Both terms may sound similar, but they apply at different stages of the tax cycle. Advance tax is paid during the financial year based on estimated income, while self-assessment tax is the balance paid before filing the return once actual income is known. Knowing when and how to pay each helps prevent interest charges under Sections 234A, 234B, and 234C, ensuring smooth compliance and stress-free filing.
Table of Contents
What is Advance Tax?
Advance tax refers to the income tax paid in advance during the financial year, instead of waiting until the end of the year to make a lump-sum payment. It is calculated based on the estimated income that a taxpayer expects to earn in the same financial year. If the total tax liability, after adjusting for TDS or TCS, exceeds ₹10,000 in a financial year, advance tax becomes mandatory. This tax applies to salaried individuals with additional income sources, self-employed professionals, and business owners. Advance tax ensures regular revenue flow for the government and reduces the year-end tax burden for taxpayers.
Who Should Pay Advance Tax and When?
Any individual, freelancer, or business entity whose estimated tax liability exceeds ₹10,000 in a financial year must pay advance tax. Salaried individuals usually have TDS deducted by employers, but if they have other income sources such as rental income, capital gains, or interest earnings, they are also liable to pay advance tax. Senior citizens above 60 years without income from business or profession are exempt. The advance tax payment schedule is divided into four installments:
On or before 15th June – 15% of total tax liability
On or before 15th September – 45% of total tax liability
On or before 15th December – 75% of total tax liability
On or before 15th March – 100% of total tax liability
This installment-based system helps taxpayers manage their cash flow efficiently throughout the year.
What Happens If Advance Tax Is Not Paid on Time?
Failing to pay advance tax within the prescribed timelines results in interest penalties under Sections 234B and 234C of the Income Tax Act, 1961. Section 234B applies if at least 90% of the total tax liability is not paid before the financial year ends, while Section 234C applies for delays or short payments in quarterly installments. The interest is calculated at 1% per month on the outstanding amount. Persistent delays can also lead to additional scrutiny by the Income Tax Department. Timely payment not only avoids penalties but also ensures smoother tax filing without last-minute financial stress.
What is Self-Assessment Tax?
Self-assessment tax is the final amount paid by taxpayers after the financial year ends, once their total income and deductions have been accurately calculated. It bridges the gap between total tax liability and taxes already paid via TDS, TCS, or advance tax. This tax must be cleared before filing the Income Tax Return (ITR). Self-assessment tax ensures that all outstanding dues are settled before submission, allowing the return to be processed successfully. It is essential to pay this tax before filing; otherwise, the ITR may be considered defective or incomplete.
When Should You Pay Self-Assessment Tax?
Self-assessment tax should be paid before submitting your ITR for the relevant assessment year. Unlike advance tax, there are no fixed quarterly deadlines, as it depends on the final computation of income at the end of the financial year. If any balance remains unpaid after deducting TDS and advance tax, that amount must be paid as self-assessment tax immediately before filing. Interest under Section 234A applies if the payment is delayed beyond the return filing date. Paying self-assessment tax in time ensures the ITR is accepted without discrepancies or penalties.
Key Differences Between Advance Tax and Self-Assessment Tax
Advance tax acts as a preventive measure during the year, while self-assessment tax is corrective, ensuring complete tax settlement before filing the return.
How to Calculate Advance Tax and Self-Assessment Tax
Calculating advance tax involves estimating total income for the year, subtracting eligible deductions under Sections 80C, 80D, etc., and applying the applicable tax slabs and cess. After adjusting for TDS and TCS, the balance is paid in installments. For self-assessment tax, the calculation is based on actual figures after year-end. Compute total taxable income, subtract deductions and taxes already paid, add applicable interest under Sections 234A/B/C (if any), and pay the balance before filing the ITR. Keeping records of advance payments, TDS certificates, and deduction proofs simplifies the process and reduces errors.
How to Pay Advance Tax and Self-Assessment Tax Online
Both taxes can be paid through the Income Tax e-filing portal or authorized bank websites. The process involves selecting the correct challan type:
Challan 100 for advance tax
Challan 300 for self-assessment tax
Steps include logging into the portal, choosing the appropriate assessment year, entering income details, and selecting payment mode (net banking, debit card, or UPI). Upon successful payment, a challan receipt with a CIN number is generated, which should be preserved as proof and used while filing the ITR.
Penalties and Interest for Late or Non-Payment
Interest penalties for non-payment or delayed payment of taxes are governed by Sections 234A, 234B, and 234C.
Section 234A: Applies when tax is unpaid before ITR filing.
Section 234B: Levied if 90% of total tax liability is unpaid by year-end.
Section 234C: Charged for missing installment deadlines for advance tax.
Each attracts an interest of 1% per month on the due amount until fully paid. Timely compliance helps avoid these penalties and ensures smoother return processing without additional scrutiny.
How TaxBuddy Helps Simplify Advance and Self-Assessment Tax Payments
TaxBuddy simplifies the entire tax payment journey by offering automated reminders, intelligent tax estimations, and expert-assisted guidance. It analyzes income patterns throughout the year to predict advance tax obligations and prevents penalties by notifying users ahead of deadlines. For self-assessment tax, TaxBuddy’s system automatically computes outstanding dues, generates challan details, and ensures compliance before return submission. With both self-filing and expert-assisted plans, the platform offers flexibility to suit every taxpayer’s needs, ensuring a smooth and error-free tax filing experience.
Common Mistakes Taxpayers Make While Paying Taxes
Many taxpayers overlook the distinction between advance tax and self-assessment tax, leading to missed deadlines or double payments. Common errors include choosing the wrong challan code, underestimating income for advance tax, ignoring additional income sources like capital gains, or failing to reconcile TDS with Form 26AS. Some taxpayers also forget to account for interest under Sections 234A/B/C when paying self-assessment tax. Regularly reviewing income statements and using automated tools like TaxBuddy helps avoid these mistakes and ensures accurate filing.
Conclusion
Understanding the difference between advance tax and self-assessment tax is crucial for maintaining compliance and avoiding unnecessary interest or penalties. Paying taxes in installments through the year helps distribute the burden, while self-assessment tax ensures final settlement before filing. Both play a vital role in timely and accurate tax compliance. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
TaxBuddy offers both self-filing and expert-assisted plans designed to cater to different types of taxpayers. Those comfortable managing their returns independently can choose the self-filing option, which provides a guided, step-by-step process within the platform. For individuals who prefer professional support or have complex tax situations such as multiple income sources, foreign income, or capital gains, the expert-assisted plan is ideal. Under this plan, qualified tax professionals handle the computation, verification, and filing process to ensure 100% accuracy and compliance with the latest Income Tax rules.
Q2. Which is the best site to file ITR?
The Income Tax Department’s official portal is the primary platform for e-filing returns. However, many taxpayers prefer using private, authorized platforms that simplify the process. Among these, TaxBuddy stands out for its AI-driven tax filing system combined with professional support. It not only automates data fetching from Form 16, AIS, and TIS but also identifies potential deductions and exemptions to optimize your tax liability. Its accuracy checks and error-prevention mechanisms make it one of the most reliable and user-friendly sites for ITR filing in India.
Q3. Where to file an income tax return?
Income tax returns can be filed online through the official portal of the Income Tax Department (www.incometax.gov.in) or via authorized e-filing intermediaries like TaxBuddy. While the government portal provides a direct interface, platforms like TaxBuddy enhance the experience by simplifying complex calculations, automatically detecting errors, and ensuring the filing is completed correctly and on time. The platform also provides reminders, expert guidance, and post-filing support, making it an efficient alternative for those who want accuracy with convenience.
Q4. What is the minimum amount of tax liability to pay advance tax?
Advance tax applies to any taxpayer whose estimated annual tax liability exceeds ₹10,000 after accounting for TDS and TCS. If the liability remains below ₹10,000, the taxpayer is not required to pay advance tax. This threshold ensures that individuals with lower incomes or fully covered by TDS do not face unnecessary compliance requirements. The rule applies to all categories of taxpayers, including salaried employees, freelancers, and businesses, except senior citizens without business income.
Q5. Can senior citizens be exempt from paying advance tax?
Yes, senior citizens who are 60 years or older and do not have income from a business or profession are exempt from paying advance tax. This exemption acknowledges that retired individuals primarily rely on fixed income sources such as pensions or interest, which often have TDS already deducted. However, if they have business or professional income, they must comply with the advance tax provisions like any other taxpayer.
Q6. What is the challan code for advance tax and self-assessment tax?
While making tax payments through the Income Tax portal or authorized banks, it is important to select the correct challan code. For advance tax payments, Challan 100 is used, whereas Challan 300 is used for self-assessment tax payments. Choosing the wrong challan may cause payment mismatches or delays in crediting the amount to your PAN. Once payment is made, a Challan Identification Number (CIN) is generated, which should be saved for reference during ITR filing.
Q7. What happens if self-assessment tax is not paid before filing the ITR?
If the self-assessment tax remains unpaid before filing your ITR, the return is considered defective under Section 139(9) of the Income Tax Act. The system will not process the return until the pending dues are cleared. Additionally, interest under Section 234A will be levied from the due date of filing until the date of payment. To avoid penalties or delays in refund processing, it is essential to pay self-assessment tax in full before submitting your return.
Q8. Can advance tax and self-assessment tax be paid in cash at a bank?
Yes, both advance tax and self-assessment tax can be paid offline at authorized bank branches in India. Taxpayers can use cash, cheque, or demand draft for payment. The bank will issue a physical counterfoil or receipt containing the Challan Identification Number (CIN) as proof. However, most taxpayers today prefer online payments via the Income Tax e-filing portal, as it provides instant confirmation, seamless integration with PAN records, and easy retrieval of payment history.
Q9. How to avoid interest under Sections 234A, 234B, and 234C?
To avoid paying interest under these sections, ensure that taxes are paid accurately and within prescribed deadlines.
Section 234A interest is avoided by clearing self-assessment tax before filing the return.
Section 234B applies if less than 90% of total tax liability is paid by March 31 of the financial year.
Section 234C applies for missed or delayed installments of advance tax. Maintaining accurate income projections, paying installments on time, and using tools like TaxBuddy’s advance tax calculator can help prevent these interest charges.
Q10. Can an employee with TDS still have to pay advance tax?
Yes, salaried employees may still have to pay advance tax if they earn additional income that is not subject to TDS. This may include rental income, capital gains from shares or property, interest from deposits, or freelancing income. Since employers only deduct TDS on salary, taxpayers must calculate total tax liability across all income sources and pay advance tax on the balance amount to avoid interest under Sections 234B and 234C.
Q11. Is there a refund if I overpay advance or self-assessment tax?
Yes, any excess tax paid beyond the actual liability is refunded by the Income Tax Department after processing the return. The refund amount is credited directly to the taxpayer’s bank account linked with the PAN. Additionally, if the refund is delayed beyond the prescribed period, the department also pays interest on the refund as per Section 244A of the Income Tax Act. To ensure faster refunds, it’s important to enter correct bank details and verify your ITR promptly after submission.
Q12. How does TaxBuddy help with advance tax reminders and accurate tax filing?
TaxBuddy helps taxpayers stay ahead of compliance deadlines with intelligent tracking and automated reminders. It calculates estimated tax liability using real-time income data, ensuring that advance tax is paid on schedule. The platform also reconciles AIS, TIS, and Form 26AS data to identify pending dues and generate accurate challan details for self-assessment tax. In addition, TaxBuddy’s expert-assisted plans ensure error-free filings, compliance with the latest tax laws, and personalized guidance to minimize penalties and maximize refunds.
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