Understanding the Impact of Advance Tax Payments on Your Tax Filing and Notices for Missing Payments

Advance tax is an essential component of the Indian tax system, enabling taxpayers to pay their estimated tax liabilities in installments throughout the financial year rather than as a lump sum at the end. Under the Income Tax Act, 1961, advance tax payments are required when a taxpayer’s tax liability exceeds ₹10,000 after accounting for TDS (Tax Deducted at Source). These payments are crucial for businesses, salaried individuals with additional income, freelancers, and professionals. Missing an advance tax installment can lead to penalties, interest, and other complications with your tax filing. Below is a guide to understanding how advance tax works, the consequences of missing payments, and how to manage your tax filing accordingly.

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Table of Contents

• What is Advance Tax and Who Needs to Pay?

• Advance Tax Payment Schedule for FY 2025-26

• How to Calculate and Pay Advance Tax

• Impact of Advance Tax on Tax Filing

• Notices and Penalties for Missing Advance Tax Payments

• Latest News and Updates

• Conclusion

• FAQs

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What is Advance Tax and Who Needs to Pay?

Advance tax, often referred to as "pay-as-you-earn" tax, is a system under which taxpayers are required to pay their taxes in installments throughout the year, rather than in a lump sum at the end of the financial year. The concept of advance tax helps the government receive timely revenue and prevents taxpayers from facing a large tax liability at the time of filing their returns.

In India, individuals, businesses, and professionals who expect their total tax liability to exceed ₹10,000 in a financial year are required to pay advance tax. This includes salaried individuals, freelancers, self-employed individuals, and companies. The key point here is that advance tax is applicable to those whose total tax liability, after considering TDS (Tax Deducted at Source) and other tax credits, is above ₹10,000.

Salaried individuals may not always need to pay advance tax if their tax is fully deducted by their employer under TDS. However, those who have additional income from sources such as capital gains, business, or freelance work are required to pay advance tax.

Advance Tax Payment Schedule for FY 2025-26

The government has laid down a structured schedule for advance tax payments, with specific due dates for each installment. For the Financial Year 2025-26, the advance tax payment schedule is as follows:

• 1st Installment (15% of the total tax liability): Due Date: June 15, 2025 The first installment of advance tax is due by June 15. Taxpayers are required to pay 15% of their estimated total tax liability for the year by this date. This installment is essential for the government to receive an early portion of the taxes for the year.
  

• 2nd Installment (45% of the total tax liability): Due Date: September 15, 2025 By September 15, taxpayers must pay 45% of their total estimated tax liability, which includes the first installment. This deadline is important, as it ensures the government receives a significant portion of taxes before the end of the quarter.
  

• 3rd Installment (75% of the total tax liability): Due Date: December 15, 2025 The third installment is due by December 15, with taxpayers required to pay 75% of their total tax liability. By this time, taxpayers should have a clearer picture of their income for the year and can make adjustments to their advance tax payments.
  

• 4th Installment (100% of the total tax liability): Due Date: March 15, 2026 The final installment is due by March 15, with taxpayers required to pay the remaining 25% of their total tax liability. This installment should cover any remaining tax dues after considering previous payments and adjustments.

If taxpayers fail to pay the advance tax by the due dates, they will be subject to interest under Section 234B and Section 234C of the Income Tax Act.

How to Calculate and Pay Advance Tax

The calculation of advance tax is based on your estimated total income for the financial year and the tax payable on that income. The process includes:

• Estimate Total Income: Add up all your expected income sources, including salary, business income, rental income, capital gains, interest income, etc. Make sure to include all sources of income to get an accurate estimate.
  

• Apply Deductions and Exemptions: Subtract eligible deductions such as those under Section 80C (for investments like PPF, life insurance premiums, etc.), Section 80D (for health insurance), and other applicable exemptions or deductions.
  

• Calculate Taxable Income: The result after subtracting deductions and exemptions from your total income is your taxable income.
  

• Apply the Tax Slab: Use the applicable income tax slabs for the relevant financial year to calculate the tax payable on the taxable income. This will give you your estimated tax liability.
  

• Adjust for TDS and Other Tax Credits: After calculating the total tax liability, subtract the TDS that has already been deducted by your employer or any other payer. You can also account for tax credits like those under Section 87A, if applicable.
  

• Calculate Advance Tax Installments: Based on the estimated tax liability, pay advance tax in the prescribed installments: 15% by June 15, 45% by September 15, 75% by December 15, and the final 100% by March 15.

Payment of Advance Tax: Once the tax liability is calculated, advance tax can be paid online through the Income Tax Department's e-filing portal or via designated banks. You need to generate a Challan 280 on the e-filing portal, select the appropriate advance tax category, and proceed with the payment.

Impact of Advance Tax on Tax Filing

Advance tax plays an essential role in managing your tax liability throughout the year. By making periodic payments, taxpayers avoid the burden of a large lump sum payment when filing their returns. It also helps businesses and professionals maintain steady cash flow by spreading out tax payments across the financial year.

The timely payment of advance tax reduces the likelihood of facing penalties and interest charges under Section 234B and Section 234C. It also ensures that you won’t face a large tax bill during the end-of-year filing process, which can affect your financial planning and cash flow.

If you fail to pay advance tax or miss any installment, interest will be charged on the amount due. The tax department applies interest under Section 234B (for shortfall in advance tax payment) and Section 234C (for underpayment of specific installments).

Notices and Penalties for Missing Advance Tax Payments

Failing to pay advance tax on time can result in significant penalties and interest charges. Here’s what you should know:

• Interest under Section 234B: If you do not pay advance tax or if you underpay it, you will be charged interest under Section 234B. The interest is calculated at 1% per month on the shortfall amount from the due date until the actual payment is made.
  

• Interest under Section 234C: Section 234C applies when you fail to pay the required installments of advance tax. It penalizes the taxpayer for missing the deadlines or underpaying the tax by a certain percentage. The interest rate under Section 234C is 1% per month on the shortfall amount in each installment.
  

• Late Payment Penalty: In addition to interest, a penalty of up to ₹5,000 can be levied if advance tax payments are not made on time.

Latest News and Updates

The government regularly updates advance tax payment procedures and deadlines, so it’s essential to stay informed about any changes. The CBDT has recently emphasized the importance of timely advance tax payments to avoid interest charges and penalties. Additionally, taxpayers are encouraged to calculate their advance tax based on the latest tax laws and exemptions, particularly after significant reforms such as the introduction of the new tax regime.

Tax professionals and businesses should keep a close watch on any changes to the advance tax system, including potential modifications to payment schedules, rates, or categories.

Conclusion

Advance tax is a crucial aspect of the Indian tax system, ensuring that taxpayers pay their taxes on time and in manageable installments throughout the year. Timely payment of advance tax helps avoid penalties, interest, and potential cash flow issues. By following the advance tax payment schedule for FY 2025-26 and calculating your tax accurately, you can ensure smooth filing and avoid surprises at the end of the financial year. Staying updated with the latest tax laws and using platforms like TaxBuddy can simplify this process, making it easier to file your taxes accurately and on time.

FAQs

Q1: Who is required to pay advance tax?

Advance tax is applicable to individuals, businesses, and professionals whose total tax liability for the financial year exceeds ₹10,000, after accounting for TDS and other credits. If your income is not fully subject to TDS or if the TDS is insufficient to cover your liability, you are required to pay advance tax.

Q2: What happens if I miss an advance tax installment?

Missing an advance tax installment will lead to penalties in the form of interest under Sections 234B and 234C of the Income Tax Act. Interest is charged on the amount of tax due from the due date of the installment until the date of actual payment. These interest penalties can accumulate and add to your overall tax liability.

Q3: Can I pay advance tax through the TaxBuddy platform?

Yes, TaxBuddy facilitates the calculation and payment of advance tax. The platform offers a seamless experience to help you determine the correct amount based on your estimated income, ensuring compliance with tax regulations and timely payments.

Q4: How is advance tax calculated?

Advance tax is calculated based on your estimated total income for the financial year, considering deductions, exemptions, and the TDS that has been deducted. TaxBuddy helps you calculate advance tax accurately by factoring in all these elements and providing you with the correct tax liability.

Q5: What is the penalty for failing to pay advance tax on time?

Failure to pay advance tax on time leads to interest penalties under Sections 234B and 234C. These penalties accumulate from the due date of the installment and may amount to a significant amount. Additionally, a late payment penalty of up to ₹5,000 may be imposed depending on the circumstances.

Q6: Can I pay advance tax if I don’t have TDS deductions?

Yes, if you have income from sources other than salary or if your TDS is insufficient, you are still required to pay advance tax. Income from freelance work, business, or investments may require advance tax payments even without TDS.

Q7: Can I revise my advance tax payments if I estimate more or less income later in the year?

Yes, you can revise your advance tax payments if your income estimate changes during the year. You need to adjust the payments before the respective due dates to avoid interest penalties and ensure you meet your updated tax liability.

Q8: What should I do if I overpay advance tax?

If you overpay advance tax, you can claim a refund when you file your ITR. The excess tax paid will be adjusted against your total tax liability, and any remaining amount will be refunded by the Income Tax Department.

Q9: How do I know how much advance tax I need to pay?

To calculate advance tax, you need to estimate your total income for the year, apply the relevant tax slabs, and account for any TDS deductions. TaxBuddy provides an easy way to estimate your advance tax liability based on these calculations, ensuring you pay the correct amount.

Q10: Can advance tax be paid online?

Yes, advance tax can be paid online through the Income Tax Department's e-filing portal or through platforms like TaxBuddy, which simplify the payment process and ensure accuracy in calculations.

Q11: Is advance tax applicable for individuals with salary income only?

No, advance tax is applicable to individuals earning income from sources other than salary. This includes income from freelance work, business, capital gains, and interest income. If your TDS is insufficient to cover your tax liability, you must pay advance tax.

Q12: When should I start planning for advance tax payments?

It is advisable to start planning for advance tax payments as early as possible in the financial year. This allows you to better estimate your tax liability and avoid any last-minute payments. Ideally, planning should begin as soon as you expect additional income sources or changes in your tax situation. TaxBuddy helps in planning and tracking advance tax payments throughout the year.