Definition
Tax paid in advance.
Tax paid during the year on estimated income.
Statutory Definition
Income Tax Act.
Etymology & Origin
Based on the economic principle of 'pay-as-you-earn', designed to prevent taxpayers from facing a massive lump-sum liability at year-end and to provide steady revenue to the exchequer.
Full Legal Analysis
Advance Tax refers to the income tax paid in instalments during the financial year in which the income is earned, rather than paying a lump sum at the end of the year. If a taxpayer's estimated tax liability (after accounting for TDS/TCS) exceeds ₹10,000 in a financial year, they are legally obligated to pay advance tax.
Advance tax is paid in four specified instalments (15%, 45%, 75%, and 100%) spread across the financial year (June, September, December, and March). It applies to all taxpayers—salaried individuals with additional income, freelancers, and corporations—though senior citizens without business income are exempt.
Failure to pay advance tax, or paying less than the prescribed percentages by the due dates, attracts mandatory penal interest under Sections 234B and 234C of the Income Tax Act.
Courts have consistently held that the levy of interest under Sections 234B and 234C for default in paying advance tax is mandatory and compensatory in nature, not penal, and the assessing officer has no discretion to waive it.
For tax practitioners, calculating advance tax requires a careful estimation of the client's current-year income, capital gains, and allowable deductions well before the financial year ends.
This Term in Indian Statutes
Income Tax Act, 1961, 1961
"Advance tax shall be payable during the financial year in every case where the amount of such tax payable by the assessee during that year... is ten thousand rupees or more."
The charging provision making advance tax mandatory for liabilities over the threshold.
