Advance Tax is a system under Indian taxation wherein taxpayers are required to pay their income tax liability in installments during the financial year itself, instead of a lump sum payment at the end of the year. This mechanism ensures a regular inflow of revenue to the government and helps taxpayers avoid interest penalties. Advance tax is applicable to individuals, professionals, and businesses whose estimated tax liability exceeds ₹10,000 in a financial year, except for senior citizens not having income from business or profession. Payments are made as per a specified schedule—15% by June 15, 45% by September 15, 75% by December 15, and 100% by March 15.
The legal foundation of Advance Tax is laid down under Section 208 to Section 219 of the Income Tax Act, 1961. As per Section 208, every person whose estimated tax liability exceeds ₹10,000 in a financial year is liable to pay advance tax. Section 210 provides the procedure for estimating and paying advance tax by the assessee. Section 234B and 234C deal with interest for default and deferment in payment of advance tax, respectively. These provisions ensure compliance and discourage delay in payment of tax dues.
Advance tax is not only applicable to salaried individuals with additional income sources like capital gains or interest income, but also to freelancers and businesses. Non-payment or underpayment of advance tax attracts penal interest, which makes timely estimation and payment crucial. It helps in managing cash flows better and avoids the burden of a large tax payment at year-end.
Mnemonic to Remember: “PEST 234”:
- P: Payment schedule (June, Sept, Dec, March)
- E: Estimate income
- S: Sections 208–219 (Legal base)
- T: Tax liability over ₹10,000
- 234: Sections 234B and 234C for interest on defaults
This mnemonic “PEST 234” helps recall the key points about Advance Tax quickly and efficiently.
