Advance tax and self-assessment tax are both components of the tax payment process in India, but they serve different purposes and have distinct characteristics.
Understanding both concepts is crucial for effective tax planning and compliance in India.
In this article, we will be discussing the difference between advance tax and self-assessment tax in India.
Here’s a breakdown of the differences:
Definition
Advance tax is the income tax that taxpayers pay in installments throughout the financial year based on their estimated income. It’s paid in advance during the financial year itself, rather than waiting until the end of the year.
Self-assessment tax is the tax liability that a taxpayer pays on their total income after calculating the total tax liability at the end of the financial year when filing the income tax return.
When applicable
Advance tax is required to be paid by individuals and businesses whose tax liability exceeds Rs 10,000 in a financial year. Advance tax is not applicable to senior citizens, aged 60 years or more, who don’t run a business.
Self assessment tax is applicable to all taxpayers who need to file a tax return, regardless of whether they have paid advance tax.
Timing: When to be paid?
Advanced tax, if liable, is to be paid in following four installments:
| Installment | Due date | % of total advance tax |
| 1st | By 15th June | 15% |
| 2nd | By September 15 | 45% |
| 3rd | By December 15 | 75% |
| 4th | By March 15 | 100% |
Typically self assessment tax is paid when the taxpayer files their income tax return, which is usually due by July 31 for individuals and by October 30 for businesses that require tax audit under section 44AB.
Purpose
Advance tax helps the government maintain a steady revenue stream and encourages taxpayers to pay taxes as they earn income.
Self assessment tax ensures that taxpayers settle their complete tax liability for the financial year after accounting for all income, deductions, and advance tax paid.
Penalty for Non-Payment
If the advance tax paid is less than 90% of the actual liability, interest may be charged under Sections 234B and 234C.
If the self-assessment tax is not paid, the taxpayer may face penalties and interest.
In summary, advance tax is paid in installments during the year based on estimated income, it helps in managing tax liabilities throughout the year. Self-Assessment tax is paid at the time of filing the return of income to cover any remaining tax liability after considering advance tax payments, it ensures complete tax compliance.
