Advance Tax vs Self-Assessment Tax: What’s the Difference & When to Pay?
- Asharam Swain
- Apr 1
- 11 min read
Understanding the distinction between Advance Tax and Self-Assessment Tax is critical for taxpayers in India, as both play a pivotal role in ensuring timely tax payments and avoiding penalties. The Income Tax Act, 1961, mandates these payments under different circumstances, and knowing when and how to pay them can save you from legal hassles and financial penalties. While Advance Tax is paid during the financial year, Self-Assessment Tax comes into play after the year ends, ensuring that the full tax liability is cleared before filing the income tax return.
Table of Content
What is Advance Tax?
Advance Tax is a system of paying income tax in installments during the financial year, instead of paying it all at once at the end of the year. This method is designed to ease the burden of tax payment for individuals whose tax liability exceeds ₹10,000 in a year. Advance Tax is applicable to individuals, companies, and businesses who are likely to have a tax liability based on their income.
Under the Income Tax Act, 1961, advance tax is applicable to individuals with income from various sources such as salary, business profits, capital gains, or rental income. The tax must be paid in four installments throughout the year. Failure to pay these installments on time may lead to interest penalties under Sections 234B and 234C of the Income Tax Act.
How to Calculate Advance Tax?
The calculation of Advance Tax involves several steps:
Calculate Gross Total Income: Add up all income sources such as salary, rental income, capital gains, interest on savings, etc.
Subtract Deductions and Exemptions: Apply deductions under Chapter VIA of the Income Tax Act, such as Section 80C (investments), 80D (insurance), etc.
Determine Total Tax Liability: Use the applicable tax slabs based on your income to calculate your total tax liability.
Add Health and Education Cess: Apply the health and education cess at 4% on the tax liability.
Subtract TDS/TCS: Any TDS (Tax Deducted at Source) or TCS (Tax Collected at Source) already deducted by your employer or other parties is subtracted from the total tax liability.
Calculate Advance Tax: The remaining tax amount after deducting TDS/TCS is the amount you need to pay as Advance Tax in installments.
What is a Self-Assessment Tax?
Self-Assessment Tax is paid after the end of the financial year when filing your income tax return. If the total tax paid through Advance Tax or TDS/TCS does not cover your full tax liability, the remaining amount is paid as Self-Assessment Tax. This ensures that any outstanding tax liability is cleared before filing the return.
Self-Assessment Tax is calculated after accounting for all the income, deductions, exemptions, and any other adjustments that might have occurred throughout the year. It is crucial for taxpayers who have missed Advance Tax payments or whose Advance Tax calculations were incorrect.
When is Self-Assessment Tax Applicable?
Self-Assessment Tax comes into play under the following circumstances:
Underestimation of Income: If you underestimated your income during the year, leading to a shortfall in tax payments.
Late Income Receipt: When significant income is received later in the year, making it impossible to account for it while paying Advance Tax.
Missed Advance Tax Deadlines: If you missed the due dates for Advance Tax payments, you must pay the balance tax amount as Self-Assessment Tax.
Errors in Advance Tax Calculation: If there were mistakes in calculating the Advance Tax, resulting in a mismatch between the total liability and the tax already paid.
Income Not Subject to TDS: If certain income is not subject to TDS, such as some capital gains, it may require Self-Assessment Tax to be paid for any shortfall.
How to Calculate Self-Assessment Tax?
The calculation of Self-Assessment Tax follows a similar process to Advance Tax, but it is done at the end of the financial year:
Calculate Actual Income: Add up all income sources for the year, including salary, business profits, interest income, etc.
Apply Deductions and Exemptions: Deduct investments, savings, and exemptions under applicable sections like 80C, 80D, etc.
Determine Taxable Income: Subtract deductions and exemptions from the total income to calculate your taxable income.
Calculate Total Tax Liability: Apply the applicable tax slabs to determine the total tax payable based on your taxable income.
Deduct TDS, TCS, and Advance Tax: Subtract the tax already paid through TDS, TCS, or Advance Tax.
Determine Self-Assessment Tax Payable: The remaining tax liability after all deductions is the amount you need to pay as Self-Assessment Tax.
It is essential to pay Self-Assessment Tax before filing your income tax return, typically before the due date of filing the return (usually July 31st for individuals not under audit).
Payment Deadlines for Advance Tax and Self-Assessment Tax
Timely payment of taxes is crucial to avoid penalties and interest. Both Advance Tax and Self-Assessment Tax have specific deadlines that must be adhered to:
Advance Tax Payment Deadlines:
15th June: 15% of the total Advance Tax liability
15th September: 45% of the total Advance Tax liability
15th December: 75% of the total Advance Tax liability
15th March: 100% of the total Advance Tax liability
These due dates ensure that tax is paid regularly throughout the year and helps avoid a lump sum payment at the end of the financial year.
Self-Assessment Tax Payment Deadline:
Self-Assessment Tax must be paid before filing the income tax return. The due date for filing the return is generally:
31st July for individuals not under audit
31st October for individuals under audit
It is important to clear any outstanding tax liability through Self-Assessment Tax before the return filing deadline to avoid interest charges or penalties for late payment.
Payment Method for Advance Tax
Paying Advance Tax is an essential part of fulfilling your tax obligations, and the process can be done either online or offline. Here’s a detailed guide on how to make the payment:
Online Payment Method:
Paying Advance Tax online is quick, easy, and secure. Follow these steps to complete the process:
Visit the Income Tax e-filing Portal: Go to the official Income Tax Department's e-filing portal at https://incometaxindiaefiling.gov.in. This is the designated platform for making all tax-related payments.
Click on "e-Pay Tax": Once you are on the portal, click on the "e-Pay Tax" option. This will direct you to a page where you can choose the type of tax payment you want to make.
Select "Income Tax" as the Payment Category: In the list of available payment categories, select "Income Tax" as your payment type.
Choose "Advance Tax (100)": After selecting the income tax category, you will be asked to choose the "Advance Tax (100)" option. This specifically relates to tax payments made in advance during the financial year.
Enter Required Details: You will need to fill in important information such as the assessment year (the year for which you are paying tax), your PAN (Permanent Account Number), and the total amount of tax you need to pay. Ensure that the information is accurate to avoid any issues with your payment.
Select Your Bank and Payment Method: Next, select your bank from the list provided. Choose your preferred payment method, such as net banking, debit card, or any other available option. The system will then redirect you to the bank’s payment gateway.
Complete the Transaction: After entering your payment details, review them carefully before submitting. Once you are ready, complete the transaction. You will receive a payment receipt upon successful completion of the payment. Make sure to download and save this receipt for your records.
Offline Payment Method:
If you prefer to make a payment offline, you can do so by following these steps:
Fill Out Challan 280: To pay Advance Tax offline, you need to fill out Challan 280, which is available on the Income Tax website. The challan form requires details such as your PAN, the assessment year, and the type of payment (Advance Tax).
Visit an Authorized Bank Branch: Take the filled-out Challan 280 to an authorized bank branch. Ensure that you have the necessary funds for the payment, as the bank will process the payment and provide a receipt.
Payment Processing: The bank will verify the challan and process the payment. After the payment is successfully made, you will receive a stamped Challan 280 receipt as proof of payment.
This method is less convenient than the online process but is an option for those who prefer to pay in person.
Payment Method for Self-Assessment Tax
Self-Assessment Tax is paid after the end of the financial year, and it is required when the total tax payable exceeds the amount already covered by TDS (Tax Deducted at Source) or Advance Tax. This ensures that any remaining tax liability is settled before filing the income tax return. Here’s a step-by-step guide on how to pay Self-Assessment Tax:
Online Payment Method:
Paying Self-Assessment Tax online follows a similar process to Advance Tax payments. Here’s how to do it:
Visit the Income Tax e-filing Portal: Go to the official Income Tax Department's e-filing portal at https://incometaxindiaefiling.gov.in.
Click on "e-Pay Tax": Click on the "e-Pay Tax" button, which will take you to the payment page where you can select the tax you wish to pay.
Select "Income Tax" as the Payment Category: Choose "Income Tax" from the list of available payment categories.
Choose "Self Assessment Tax (300)": From the options available, select "Self Assessment Tax (300)" as the payment type. This option is specifically for paying tax after the financial year ends, based on any outstanding liabilities.
Enter Required Information: You will need to fill in details such as the assessment year, your PAN, and the amount of tax you need to pay. Be sure to input all details correctly to ensure smooth processing.
Select Your Bank and Payment Method: Choose your bank from the list of available options and select your preferred payment method (net banking, debit card, etc.). After selecting your payment method, the system will redirect you to your bank's payment gateway.
Complete the Transaction: After reviewing your payment details, click on Submit to complete the payment. Upon successful payment, you will receive a receipt confirming the transaction. Download and keep this receipt for future reference.
Offline Payment Method:
You can also pay Self-Assessment Tax offline by following these steps:
Fill Out Challan 280: Similar to Advance Tax, you will need to fill out Challan 280 for Self-Assessment Tax. This challan will require details such as your PAN, the assessment year, and the payment type (Self-Assessment Tax).
Visit an Authorized Bank Branch: Take the completed Challan 280 to an authorized bank branch, where the bank will process your payment.
Payment Processing: The bank will verify the information on the challan and process the payment. After the payment is successfully made, the bank will provide you with a stamped Challan 280 receipt as proof of payment.
Recent Updates Impacting Advance Tax and Self-Assessment Tax
The Union Budget 2025 has introduced several important updates that impact Advance Tax and Self-Assessment Tax:
Changes in Tax Rates:
New tax slabs and rebates have been introduced, affecting how Advance Tax and Self-Assessment Tax are calculated. The revision aims to provide relief to middle-income taxpayers.
Mandatory Digital Payments:
Taxpayers with higher income are now required to make tax payments through digital methods, streamlining the payment process and reducing the scope for errors or delays.
Penalty for Late Payments:
The penalties for late payments have been increased. Delaying tax payments or missing the deadlines for both Advance Tax and Self-Assessment Tax will now result in higher interest penalties under Sections 234B and 234C.
Enhanced Calculation Tools:
The Income Tax Department has introduced more sophisticated online tools to help taxpayers accurately calculate both Advance Tax and Self-Assessment Tax. These tools reduce errors in tax calculations and ensure better compliance.
These updates aim to improve the efficiency and accuracy of tax collection while providing greater convenience to taxpayers.
Conclusion
Both Advance Tax and Self-Assessment Tax are essential components of India’s tax system, designed to ensure timely tax payment and reduce the financial burden at the end of the financial year. While Advance Tax is paid in installments during the year based on estimated income, Self-Assessment Tax is a way to clear any outstanding tax liability after the financial year ends, typically before filing the income tax return.
Understanding the differences between these taxes, when to pay them, and how to calculate them is key to avoiding penalties and maintaining tax compliance. Be mindful of the deadlines and any recent updates, such as the introduction of digital payment methods and penalties for late payments. Always ensure that your tax liabilities are settled on time to avoid unnecessary charges.
FAQs
What is the difference between Advance Tax and Self-Assessment Tax?
Advance Tax is paid during the financial year in installments based on estimated income, while Self-Assessment Tax is paid after the year ends, to cover any remaining tax liability that wasn’t covered by TDS, Advance Tax, or TCS. Self-Assessment Tax is paid before filing the income tax return to ensure that all outstanding tax is cleared.
Who is required to pay Advance Tax?
Individuals, companies, and businesses whose tax liability exceeds ₹10,000 in a financial year are required to pay Advance Tax. This includes salaried individuals with significant other income, business owners, and professionals.
How is Advance Tax calculated for salaried individuals?
To calculate Advance Tax for salaried individuals, first calculate the total gross income (salary, rental income, etc.), then apply applicable deductions (under Sections 80C, 80D, etc.). After applying tax slabs, subtract any TDS already deducted, and the remaining balance is the Advance Tax that must be paid in installments.
What happens if I miss an Advance Tax payment?
Missing an Advance Tax payment can lead to interest penalties under Sections 234B and 234C. Section 234B imposes interest if the total tax payable exceeds ₹10,000 and has not been paid in full through Advance Tax or TDS. Section 234C imposes interest for failing to pay the correct amount in each instalment by the due date.
Can I pay Advance Tax if I don’t have a regular income?
Yes, if you are receiving income from freelancing, business, or rental income, and your total tax liability exceeds ₹10,000, you are required to pay Advance Tax based on the projected income for the year.
What should I do if I miss the Advance Tax deadlines?
If you miss an Advance Tax deadline, you must pay the overdue installments immediately, along with any interest on late payment under Section 234B and 234C. The amount payable will include both the tax due and any penalties for delay.
Is it possible to pay Self-Assessment Tax after the financial year ends?
Yes, Self-Assessment Tax is paid after the financial year ends, typically before filing your income tax return. It is paid to clear any outstanding tax liability that wasn’t covered by Advance Tax or TDS during the year.
How do I calculate Self-Assessment Tax?
To calculate Self-Assessment Tax, first calculate your total income from all sources. Then, apply relevant deductions (under Sections 80C, 80D, etc.) to arrive at your taxable income. Apply the applicable tax slabs, subtract any Advance Tax and TDS already paid, and the remaining amount is your Self-Assessment Tax.
What if I underpaid Advance Tax during the year?
If you have underpaid Advance Tax, you will need to pay the difference as Self-Assessment Tax. Any underpayment will also attract interest penalties under Section 234B and 234C for failing to meet the required installments.
Can I claim refunds for excess Advance Tax paid?
Yes, if you have paid more Advance Tax than your actual tax liability, you can claim a refund when filing your income tax return. The excess amount will be refunded by the Income Tax Department after processing the return.
Are there any penalties for late payment of Self-Assessment Tax?
Yes, if you delay the payment of Self-Assessment Tax, you may face interest under Section 234A. The interest is calculated on the outstanding tax amount and is charged from the due date of the return filing until the date the tax is paid.
Can I pay Advance Tax and Self-Assessment Tax online?
Yes, both Advance Tax and Self-Assessment Tax can be paid online through the Income Tax Department’s e-filing portal. You can use net banking or other online payment methods to complete the tax payment process, which helps ensure a quicker and more convenient transaction.
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