Understanding Advance Tax: A Complete Guide for Indian Taxpayers and Businesses
Advance tax in India is a system of paying income tax in installments throughout the financial year, rather than as a lump sum at year-end. Also known as the ‘pay-as-you-earn’ tax, it ensures steady government revenue while helping taxpayers avoid last-minute financial strain.
For individuals, freelancers, and especially business owners and MSMEs, staying compliant with advance tax requirements is essential to avoid penalties and interest under the Income Tax Act, 1961.
As leading Tax Consultants in Mumbai, we at Makwana Sweta & Associates help individuals and businesses plan and pay advance tax accurately and on time. This guide simplifies the concept of advance tax and its applicability.
What is Advance Tax?
Advance tax is the income tax payable if your total tax liability exceeds ₹10,000 in a financial year. Instead of paying this at the end of the year, taxpayers must pay it in four pre-defined installments.
It is applicable to:
- Salaried individuals with income from other sources (like rent or capital gains)
- Self-employed professionals (doctors, lawyers, consultants, freelancers)
- Business owners (including MSMEs)
- Companies
Note: Salaried individuals with only TDS-deducted income usually don’t need to pay advance tax. But if they earn from multiple sources, they might.
Due Dates for Advance Tax Payments
The advance tax for individuals and corporate taxpayers is paid in the following schedule:
| Due Date | % of Total Tax Payable |
|---|---|
| 15th June | 15% |
| 15th September | 45% (Cumulative) |
| 15th December | 75% (Cumulative) |
| 15th March | 100% (Cumulative) |
For taxpayers under the Presumptive Taxation Scheme (Sections 44AD & 44ADA), the entire advance tax liability can be paid by 15th March in one installment.
Who Needs to Pay Advance Tax?
You are liable to pay advance tax if:
- Your estimated tax liability exceeds ₹10,000 after adjusting TDS.
- You are a freelancer, consultant, or professional with income not subject to TDS.
- You are a business owner (including MSMEs and startups) with taxable income.
- You earn significant interest income, capital gains, or rental income.
How to Calculate Advance Tax
Here’s a simplified 5-step method to calculate advance tax in India:
- Estimate annual income from all sources.
- Deduct eligible exemptions and deductions (Sections 80C, 80D, HRA, etc.).
- Compute the tax liability using applicable tax slabs.
- Reduce TDS already deducted.
- The balance amount (if above ₹10,000) is the advance tax payable in scheduled installments.
As professional Chartered Accountants in Mumbai, we help clients optimise their tax planning and avoid overpaying or underpaying advance tax in India.
Modes of Payment
Advance tax can be paid:
- Online via the TIN-NSDL portal or the e-Filing portal
- Offline at authorized bank branches using Challan 280
Pro tip from CA Sweta Makwana: Always save the challan or acknowledgment for each installment paid, as it is required during ITR filing.
Penalties for Non-Payment or Short Payment
Under Sections 234B and 234C of the Income Tax Act:
- Interest at 1% per month is charged for short payment or non-payment.
- Additional interest applies if installments are missed or delayed.
For business owners and professionals, such penalties can significantly increase the effective tax cost. This is why having a proactive CA in Mumbai can prevent compliance gaps.
Advance Tax for Freelancers and Professionals
Many freelancers, consultants, and digital professionals often miss advance tax deadlines due to irregular cash flows.
Common mistakes include:
- Misjudging taxable income from platforms like Upwork, Fiverr, YouTube, etc.
- Not factoring in foreign income and FIRC inflows
- Forgetting rental and interest income
A registered Chartered Accountant in Mumbai ensures freelancers declare and pay advance tax correctly, making them eligible for smoother tax refunds and audit readiness.
Advance Tax for MSMEs and Startups
MSMEs often struggle with advance tax due to:
- Complex profit estimates
- Delay in receiving payments
- Variations in seasonal revenue
Still, they must comply with advance tax if profits exceed the taxable threshold. Registered businesses under the Presumptive Taxation Scheme (Section 44AD/ADA) can simplify this by declaring a flat profit rate.
As experienced Chartered Accountant Services Mumbai, we assist MSMEs in determining whether they should opt for presumptive taxation or regular accounting, optimising both compliance and tax savings.
Benefits of Timely Advance Tax Payment
Paying advance tax on time results in:
- Avoidance of interest penalties
- Improved cash flow planning
- Faster processing of refunds
- Better creditworthiness, especially for MSMEs during loan application
- Compliance with Income Tax Rules, increasing your reliability as a business entity
How CA Services in Mumbai Help
At Makwana Sweta & Associates, we provide a full range of Chartered Accountant Services in Mumbai to individuals, professionals, and MSMEs:
- Advance tax calculation
- Payment reminders & due date tracking
- Quarterly tax reviews and adjustments
- Presumptive scheme guidance
- End-to-end ITR filing and refund management
Our team of expert tax consultants in Mumbai ensures that your tax planning is not just compliant but also cost-efficient and growth-focused.
Final Thoughts
Advance tax compliance is a sign of a responsible and forward-thinking taxpayer or entrepreneur. Whether you’re a salaried individual with additional income, a gig economy professional, or an MSME founder—advance tax is your legal obligation and planning tool.
If you’re unsure how to calculate or pay your advance tax, reach out to us at CA Makwana Sweta & Associates.