All about Advance Tax Under the Income-tax Act, 2025

All about Advance Tax Under the Income Tax Act, 2025

Advance tax refers to income tax paid in installments during the financial year on estimated income rather than paying it in a lump sum at year-end. Advance tax follows the self-assessment principle. The taxpayer himself must estimate income and pay advance tax. Normally, the Income Tax Dept. does not issue a demand. However, if the assessing officer believes a taxpayer is liable, the assessing officer may issue a written order requiring payment of advance tax in specified installments. Details provisions related to advance tax under the Income Tax Act, 2025 are mentioned below:

1. Applicability – Sec 403 : U/s 403, every assessee is required to pay advance tax on their current income for the relevant tax year. Advance tax ensures timely collection of revenue and avoids bunching of tax payments at the year-end.
2. Who is Liable to Pay Advance Tax : It applies to income earned during the year, such as business or professional income, capital gains, rental income, interest income, dividend income, and freelancing or consultancy income. A person must pay advance tax if the estimated tax liability during the financial year exceeds INR 10,000 after adjusting TDS/TCS. Advance tax is applicable to individuals, HUFs, firms, companies, LLPs, freelancers, and professionals.
3. Calculation Formula related to Advance Tax Under the Income Tax Act, 2025

• Computation of Advance Tax : Advance tax is calculated as: Estimated Total Income (FY) − Deductions / exemptions = Taxable Income.

• Tax on income: surcharge (if applicable) and health & education cess − TDS / TCS expected = Advance tax payable

Advance Tax = Tax on Estimated Income – TDS/TCS Credit

1. Sections Related to Advance Tax (Income Tax Act, 2025)

These sections collectively regulate calculation, payment, due dates, and consequences of default.

1. Persons Not Required to Pay Advance Tax- Exemption from Advance Tax: A resident senior citizen is not liable to pay advance tax if they are 60 years or above and they do not have income from a business or profession. This exemption continues the long-standing relief for elderly individuals with nonbusiness income (like pensions, interest, rentals, etc.). Advance tax is not required in the following cases:

• Resident senior citizens (60 years or above): No income from business or profession.
• When total tax liability ≤ INR 10,000.
• In some cases where income cannot be estimated earlier (e.g., sudden capital gains).

1. Instalment Structure – Sec 408 : Advance tax is paid in four cumulative instalments during the financial year:

Any tax paid up to 31 March is treated as advance tax, even if paid after 15 March.

1. Presumptive Taxation – Relaxed Schedule : For assessees opting for presumptive taxation 100% of the advance tax may be paid on or before 15 March. And No quarterly instalments required. This applies to presumptive schemes like Sec 44AD (business – small taxpayers), Sec 44ADA (profession), and Sec 44AE (transporters).

1. Interest for Default—Sec 425 : If the advance tax paid on or before each due date is less than the advance tax payable based on the returned income, the assessee is liable to interest on the shortfall. Interest liability typically arises for non-payment, short payment, and late payment of installments. (Equivalent to current Sec 234B/234C framework.)

1. Interest for Non-Payment or Short Payment

• Section 234B: Interest charged when advance tax paid is less than 90% of total tax liability. Interest: 1% per month.
• Section 234C: Interest charged when installment payments are delayed or insufficient.

1. Interest for Deferment of Installments (Section 425) : If the advance tax paid by installment dates is less than required, interest applies. Interest Rates

Interest is calculated on the shortfall amount. Interest U/s 425 is calculated based on tax on returned income.

1. Special Situations in the case of Advance Tax Under the Income-tax Act, 2025

• Relief From Interest : The Act continues to provide relief where it is not possible to estimate income in advance, such as capital gains arising after installment due dates, dividend income (since unpredictable), income from lottery, betting, gambling, etc. and first-time business income arising during the year. In these cases, advance tax may be paid in remaining installments, and no interest is charged for earlier installments.
• Credit of Advance Tax : The advance tax paid during the year is adjusted against the final tax liability while filing the ITR. If excess tax is paid, a refund is issued by the Income Tax Dept.
• Payment Between 16 March and 31 March : Any tax paid up to 31 March is still treated as advance tax. However, interest under  425 may apply if payment is made after 15 March. And for the purpose of Section 424, such payments are still considered advance tax.
• Key Difference Between Section 424 and Section 425

• Tolerance Limits for First Two Installments: The Act provides relaxation for estimation errors. No interest will apply if advance tax paid is at least:

• If the amount is below these limits, interest applies on the full shortfall.

Summary of Advance Tax Under the Income-tax Act, 2025

Advance tax ensures timely tax collection during the year. Liability arises if tax payable exceeds INR 10,000. Paid in four installments during the financial year., Resident senior citizens without business income are exempt. Section 424 deals with default in payment; Section 425 deals with installment shortfall. And certain tolerances and exemptions reduce interest liability.

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