Advance Tax 2nd Installment: Planning Tips for FY 2025-26
Advance Tax 2nd Installment: Planning Tips for FY 2025-26
As we approach the second quarter of the financial year 2025-26, it's crucial for taxpayers, especially professionals and businesses, to prepare for the second installment of advance tax. This installment is due by 15th September 2025, and understanding its nuances can aid in efficient tax planning and compliance.
Understanding Advance Tax
Advance tax, often termed as "pay-as-you-earn" tax, requires taxpayers to pay their estimated annual tax liability in installments throughout the financial year. This system ensures a steady inflow of revenue for the government and prevents a lump-sum tax burden on taxpayers at the end of the year.
Due Dates and Installments for FY 2025-26
For the financial year 2025-26, the advance tax payment schedule is as follows:
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15th June 2025: 15% of the estimated tax liability
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15th September 2025: 45% of the estimated tax liability (cumulative)
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15th December 2025: 75% of the estimated tax liability (cumulative)
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15th March 2026: 100% of the estimated tax liability (cumulative)
It's essential to note that these percentages are cumulative. Therefore, by 15th September 2025, a taxpayer should have paid 45% of their total estimated tax liability for the year.
Calculating Advance Tax
To determine the amount payable:
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Estimate Total Income: Include income from all sources such as salary, business profits, capital gains, interest, and rental income.
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Deduct Eligible Deductions: Subtract deductions under sections like 80C, 80D, etc.
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Compute Tax Liability: Apply the applicable tax slab rates to the net taxable income.
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Subtract TDS: Deduct the tax already deducted at source (TDS) from the computed tax liability.
If the resulting amount exceeds ₹10,000, the taxpayer is liable to pay advance tax.
Importance of Timely Payment
Failing to pay the advance tax installments on time can lead to interest penalties under Sections 234B and 234C of the Income Tax Act. Timely payments ensure:
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Avoidance of interest penalties.
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Smoother cash flow management.
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Reduced year-end tax burden.
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Compliance with tax regulations, minimizing the risk of scrutiny.
Tips for Professionals and Businesses
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Regularly Review Financials: Monitor income and expenses to make accurate tax estimations.
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Consider Seasonal Variations: For businesses with seasonal income, adjust estimates accordingly.
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Account for Capital Gains: If anticipating capital gains, factor them into the advance tax calculations.
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Utilize Tax Planning Tools: Leverage online calculators and consult with tax professionals to ensure accurate computations.
How to Pay Advance Tax
Advance tax can be paid online through the Income Tax Department's e-filing portal:
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Visit the e-filing portal.
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Navigate to 'e-Pay Tax' under the 'Quick Links' section.
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Enter the required details, including PAN and assessment year.
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Select 'Advance Tax (100)' as the payment type.
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Choose the preferred payment method and complete the transaction.
Conclusion
The second installment of advance tax is a pivotal point in the financial year, offering an opportunity to reassess income projections and ensure tax compliance. By staying proactive and informed, professionals and businesses can manage their tax liabilities efficiently, avoiding penalties and fostering financial discipline.