Is Advance Tax Mandatory for Rental Income Earners? How to Calculate & Pay
- Rajesh Kumar Kar
- Apr 8
- 9 min read
Updated: Apr 17
If you earn income from renting out property, you may be required to pay advance tax if your totatax liability exceeds ₹10,000 in a financial year. This includes rental income, which is subject to tax under "Income from House Property" after applying a standard deduction of 30%.
The requirement to pay advance tax often confuses many taxpayers, especially those with rental income. Understanding when and how to pay advance tax can save you from penalties and interest for non-compliance. The process involves estimating your total income, calculating your tax liability, and making timely payments in installments throughout the year.
Explore the steps, calculations, and timelines involved in paying advance tax for rental income, and ensure you meet your tax obligations accurately.
Table of Contents
Who Needs to Pay Advance Tax?
As per Section 208 of the Income Tax Act, 1961, any individual whose total tax liability for the financial year exceeds ₹10,000 is required to pay advance tax. This applies to all taxpayers, including those earning rental income.
Eligibility for Advance Tax:
Rental income is considered taxable under "Income from House Property," and if it contributes to a total income that crosses the ₹10,000 tax liability threshold, you must pay advance tax.
Rental income, after deducting a standard 30% deduction, is added to other sources of income, such as capital gains, interest from fixed deposits, or salary. The total sum is then taxed according to the applicable income tax slabs.
If your total tax liability exceeds ₹10,000, advance tax payments will be necessary.
Exemptions:
Senior Citizens: Resident senior citizens who are 60 years or older during the financial year and do not have any business or professional income are exempt from paying advance tax.
Individuals whose total tax liability is below ₹10,000 or those falling within the exemptions mentioned above, do not need to make advance tax payments.
How to Calculate Advance Tax for Rental Income Earners
1. Calculating Under the Old Tax Regime
Under the old tax regime, taxpayers can claim various deductions and exemptions (such as HRA, 80C, 80D, etc.), which can significantly reduce taxable income. Here's the process for calculating advance tax under the old tax regime:
Step 1: Estimating Total Income from All Sources
Consider all income sources, including:
Rental income
Interest income from FDs, savings accounts, etc.
Capital gains from property, shares, etc.
Any other income like business or salary income.
Step 2: Calculating Gross Taxable Income After Applying the Standard Deduction on Rental Income
For rental income, the 30% standard deduction is applied under both the old and new tax regimes. This deduction is applied to the net annual value (NAV) of the property.
Example:
Annual rental income: ₹3,00,000
Standard deduction (30%): ₹90,000
Net rental income after deduction: ₹3,00,000 - ₹90,000 = ₹2,10,000
Step 3: Applying Income Tax Slabs for the Old Tax Regime
The income tax slabs for the old tax regime for FY 2024-2025 are as follows:
Income up to ₹2,50,000 – No tax
Income between ₹2,50,001 and ₹5,00,000 – 5% tax
Income between ₹5,00,001 and ₹10,00,000 – 20% tax
Income above ₹10,00,000 – 30% tax
Example (with net income of ₹6,00,000):
First ₹2,50,000 – No tax
Next ₹2,50,000 – 5% tax = ₹12,500
Remaining ₹1,00,000 – 20% tax = ₹20,000
Total tax payable: ₹12,500 + ₹20,000 = ₹32,500
Step 4: Adjusting for TDS (Tax Deducted at Source)
If any TDS has already been deducted (e.g., on rental income or other interest income), subtract it from the total tax payable. Example:
Total tax payable: ₹32,500
TDS already deducted: ₹5,000
Remaining tax payable: ₹32,500 - ₹5,000 = ₹27,500
Step 5: Calculating Advance Tax Payable
If the net tax liability is more than ₹10,000, advance tax needs to be paid.
2. Calculating Under the New Tax Regime (FY 2024-2025)
Under the new tax regime, most exemptions and deductions (such as HRA, 80C, etc.) are not allowed. However, the 30% standard deduction on rental income is applicable, and the tax rates are lower. Here’s how to calculate it under the new tax regime:
Step 1: Estimating Total Income from All Sources
As in the old regime, include:
Rental income
Interest income
Capital gains
Any other sources of income
Step 2: Calculating Gross Taxable Income After Applying the Standard Deduction on Rental Income
The same 30% standard deduction applies under the new tax regime on rental income.
Example:
Annual rental income: ₹3,00,000
Standard deduction (30%): ₹90,000
Net rental income after deduction: ₹3,00,000 - ₹90,000 = ₹2,10,000
Step 3: Applying Income Tax Slabs for the New Tax Regime (Budget 2024)
The latest income tax slabs for the new tax regime for FY 2024-2025, as per Budget 2024, are as follows:
Income up to ₹3,00,000 – 0% tax
Income between ₹3,00,001 and ₹7,00,000 – 5% tax
Income between ₹7,00,001 and ₹10,00,000 – 10% tax
Income between ₹10,00,001 and ₹12,00,000 – 15% tax
Income between ₹12,00,001 and ₹15,00,000 – 20% tax
Income above ₹15,00,000 – 30% tax
Example (with net income of ₹6,00,000):
First ₹3,00,000 – No tax
Next ₹3,00,000 – 5% tax = ₹15,000
Total tax payable: ₹15,000
Step 4: Adjusting for TDS (Tax Deducted at Source)
As with the old regime, any TDS deducted needs to be subtracted from the total tax payable.
Example:
Total tax payable: ₹15,000
TDS already deducted: ₹5,000
Remaining tax payable: ₹15,000 - ₹5,000 = ₹10,000
Step 5: Calculating Advance Tax Payable
If your net tax liability is more than ₹10,000, you need to pay advance tax.
Payment Schedule for Advance Tax
Advance tax is paid in four installments throughout the financial year. These installments help spread out the tax burden and ensure that the tax is paid regularly.
Dates for Each Installment of Advance Tax Payments
The due dates for advance tax payments are as follows:
Due Date | Advance Tax Liability |
June 15 | 15% of total tax liability |
September 15 | 45% of total tax liability |
December 15 | 75% of total tax liability |
March 15 | 100% of total tax liability |
The first installment of advance tax is due by June 15, and the final installment is due by March 15 of the following year. If you're under any presumptive taxation scheme (like Section 44AD or 44ADA), the entire advance tax liability must be paid by March 15.
Explanation of How to Pay Advance Tax Over the Year
Installments: Advance tax is paid in four equal installments. However, the amount payable in each installment depends on the total tax liability and the due dates.
Mode of Payment: The tax can be paid online through the Income Tax Department’s e-payment portal or at designated banks.
Installment Calculation: For example, if the total tax liability is ₹40,000, the installments would be ₹6,000 by June 15, ₹18,000 by September 15, ₹24,000 by December 15, and the final balance by March 15.
By following this payment schedule and ensuring timely payment of each installment, taxpayers can avoid interest or penalties for underpayment or late payment.
Consequences of Not Paying Advance Tax
Failure to pay advance tax on time can lead to significant financial repercussions. The Income Tax Act, 1961 imposes penalties and interest under Sections 234B and 234C for non-payment or delayed payment of advance tax.
Section 234B: If the advance tax paid is less than 90% of the total tax payable, interest is charged at the rate of 1% per month on the shortfall amount from the due date of the assessment year until the date of payment.
Section 234C: This section imposes interest if the advance tax paid in each installment is less than the prescribed percentage of the total tax liability. The interest is charged at 1% per month for the shortfall amount in each installment. The penalties for delay can accumulate quickly, leading to higher costs than the actual tax due.
To avoid such penalties, it is crucial to calculate your advance tax accurately and make timely payments according to the prescribed schedule.
Budget 2025 Update: Recent Tax Changes Relevant to Rental Income
The Budget 2025 introduced several significant changes that impact rental income earners, simplifying compliance and providing tax relief for property owners:
Self-Occupied Property Rules: The budget allows individuals to claim up to two house properties as self-occupied. This change eliminates the need for deemed rental income on the second property, which previously taxed owners even if the property was not rented out. This provision helps reduce taxable income for those owning more than one property, offering more flexibility and tax relief.
Property Tax Relief: The government has introduced measures to provide tax relief on property taxation, benefiting property owners who either live in or rent out their houses. These changes aim to make the taxation process easier and more transparent for rental income earners.
These updates aim to improve tax efficiency for rental property owners and reduce the complexity of income tax filings for those managing multiple properties.
Conclusion
Understanding advance tax obligations is crucial for rental income earners to avoid penalties and interest charges. Advance tax becomes mandatory if your total tax liability exceeds ₹10,000, and timely payments must be made as per the prescribed schedule. The Budget 2025 has introduced beneficial provisions such as the ability to claim up to two properties as self-occupied and provided additional relief on property taxes, making it easier for rental income earners to manage their tax liabilities.
It's essential to stay on top of your tax calculations and payments to ensure compliance and avoid unnecessary penalties. Regularly reviewing your tax situation and adhering to the advance tax schedule will help maintain financial health while reducing the risk of unexpected charges.
FAQs:
1. What is advance tax, and who is required to pay it?
Advance tax is a system where individuals or entities are required to pay their taxes in installments throughout the year, rather than in one lump sum after the financial year ends. Rental income earners are required to pay advance tax if their total tax liability exceeds ₹10,000 for the financial year.
2. Is advance tax applicable only to salaried individuals?
No, advance tax is applicable to all individuals who earn income that is not subject to TDS (Tax Deducted at Source), including rental income. It applies to freelancers, business owners, and individuals earning rental income.
3. How do I calculate advance tax for my rental income?
To calculate advance tax on rental income:
Estimate your total income (including rent, salary, interest, etc.).
Apply the 30% standard deduction on the rental income.
Subtract any TDS already deducted.
Use the income tax slabs to calculate your tax liability.
Pay advance tax if your net liability exceeds ₹10,000.
4. What happens if I don’t pay advance tax on time?
Failure to pay advance tax on time leads to penalties and interest charges under Sections 234B and 234C of the Income Tax Act. These charges are levied for underpayment or late payment of taxes.
5. Can I claim deductions on rental income for advance tax calculation?
Yes, rental income is eligible for a 30% standard deduction for maintenance costs. Other deductions, such as interest on loans for the property, may also reduce your taxable rental income, which helps in calculating advance tax.
6. How do I adjust for TDS when calculating advance tax?
If your rental income has TDS deducted by the tenant or any other party, subtract the total TDS from your calculated tax liability. The remaining amount is what you must pay as advance tax.
7. Are senior citizens exempt from paying advance tax on rental income?
Yes, resident senior citizens aged 60 years or more and not engaged in any business or profession are exempt from paying advance tax, regardless of their rental income.
8. When are advance tax payments due?
Advance tax is paid in four installments:
June 15: 15% of total tax liability
September 15: 45% of total tax liability
December 15: 75% of total tax liability
March 15: 100% of total tax liability
For individuals under presumptive taxation schemes, the entire tax must be paid by March 15.
9. Can I pay the entire advance tax in one installment?
While it is not required to pay all advance tax in one installment, you can opt to pay the full liability by March 15. However, missing earlier installments could result in penalties and interest charges.
10. Is advance tax applicable for both rented residential and commercial properties?
Yes, advance tax applies to income earned from both residential and commercial rental properties, as both are treated under "Income from House Property" for taxation purposes.
11. Can I pay advance tax in installments?
Yes, advance tax is meant to be paid in installments as per the due dates. You are required to pay the estimated tax in four installments throughout the year based on your income.
12. How can I pay advance tax?
Advance tax
can be paid online through the Income Tax Department's e-payment portal, or through designated banks offering the service. You must select the appropriate challan and mention your PAN number while making the payment.
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