When it comes to paying income tax, most people think of filing returns at the end of the year. However, the Income Tax Act introduces the concept of advance tax to make sure the government gets tax revenue throughout the year instead of waiting until year-end. Section 208 of the Income Tax Act specifically deals with the conditions of liability to pay advance tax, explaining when and how it applies to taxpayers.
This section ensures that those with significant tax liability contribute taxes in installments, making compliance smoother for both taxpayers & the government. Let’s break down the law in simple terms.
What is Section 208 of the Income Tax Act?
Section 208 lays down the liability to pay advance tax. It clearly states that if the total estimated tax payable by a person in a financial year is ₹10,000 or more (after deducting TDS), then advance tax is payable during a financial year.
This provision applies to individuals, companies, & other assessees, making sure that tax payments are not delayed until return filing. By distributing the payment across the year, taxpayers manage their liabilities better, while the government maintains steady cash flow."
Conditions of Liability to Pay Advance Tax
The conditions of liability to pay advance tax are straightforward:
- If your total estimated tax liability for the year is ₹10,000 or more.
- After adjusting TDS or advance payments already made.
- Applies to all assessees, including salaried employees, freelancers, businesses, and companies.
In short, an assessee who is liable to pay advance tax under Section 208 must ensure payment in time.
Who is Liable to Pay Advance Tax?
The liability is broad and covers:
- Salaried individuals – Even though employers deduct TDS, if you have income from other sources (like rent, interest, or capital gains), you may still need to pay advance tax.
- Self-employed professionals – Doctors, lawyers, freelancers, & consultants with tax liability above ₹10,000.
- Businesses – Proprietorships, partnerships, and companies with taxable income.
- Investors – Those earning from capital gains, F&O trading, or dividends.
So, an assessee is liable to pay advance tax if they fall under these categories.
Also Read: Tax Deducted at Source (TDS) – India’s Withholding Tax
When Advance Tax Shall Be Payable During a Financial Year
Section 208 makes it clear that advance tax shall be payable during a financial year in installments. The due dates and percentages are:
- 15th June – 15% of total tax liability.
- 15th September – 45% of total tax liability.
- 15th December – 75% of total tax liability.
- 15th March – 100% of total tax liability.
For companies, these due dates are mandatory, while individuals may follow slightly relaxed norms under presumptive taxation."
Calculation of Advance Tax
To calculate advance tax:
- Estimate your total income for the financial year.
- Deduct eligible exemptions & deductions (like 80C, 80D, etc.).
- Compute total tax liability based on applicable slabs.
- Subtract TDS already deducted.
- If balance exceeds ₹10,000, pay advance tax as per due dates.
This structured approach ensures taxpayers don’t fall short on compliance.
Advance Tax for Businesses and Professionals
For businesses and professionals under presumptive taxation (Section 44AD/44ADA), the rules are slightly different. They need to pay 100% of advance tax by 15th March of the financial year.
This simplifies compliance for small taxpayers, while still ensuring revenue for the government.
Penalties for Not Paying Advance Tax
Failure to comply with Section 208 results in interest penalties under Sections 234B and 234C:
- Section 234B: Interest for default in payment of advance tax.
- Section 234C: Interest for deferment of advance tax installments.
Thus, even if you miss one installment, interest gets charged on the balance.
Also Read: Presumptive Taxation Scheme for Professionals
Importance of Section 208
- Timely Revenue Collection – Ensures government cash flow throughout the year.
- Reduced Year-End Burden – Taxpayers avoid lump-sum payment pressure.
- Improved Compliance – Encourages assessees to be disciplined.
- Covers All Assessees – Salaried, businesses, & professionals alike.
Without Section 208, the tax system would see delays and reduced voluntary compliance.
Example of Advance Tax Liability
Imagine a freelancer estimates annual income of ₹12,00,000. After deductions, their tax liability comes to ₹1,20,000. TDS deducted is ₹40,000. Net payable = ₹80,000.
Since this exceeds ₹10,000, they fall under conditions of liability to pay advance tax. Thus, advance tax shall be payable during a financial year in 4 installments across June, September, December, and March.
Exceptions to Section 208
There are a few exceptions:
- Senior citizens (aged 60 ) not having income from business or profession are exempt.
- If tax liability is less than ₹10,000 after TDS adjustment.
- If the entire tax liability is covered through TDS deduction.
These relaxations make it fair for smaller taxpayers."
Difference Between TDS and Advance Tax
|
Aspect |
TDS |
Advance Tax |
|
Deducted by |
Employer/Payer |
Paid directly by assessee |
|
Timing |
At source of income |
Quarterly during the year |
|
Applicability |
Salaried, contractors, etc. |
Any assessee with liability above ₹10,000 |
Thus, even if you are salaried, extra income like rent or interest can make you liable under Section 208.
Also Read: Interest on Delay in Advance Tax Payments
Why Section 208 Matters
For taxpayers, it prevents last-minute burden. For the government, it ensures consistent revenue inflows. For professionals & businesses, it spreads tax liability across the year.
In essence, an assessee who is liable to pay advance tax under Section 208 must carefully calculate, pay on time, and avoid penalties.
Conclusion
Section 208 of the Income Tax Act sets out the conditions of liability to pay advance tax. It clearly states that advance tax is payable during a financial year if the estimated liability crosses ₹10,000. Thus, an assessee is liable to pay advance tax in installments throughout the year to stay compliant and avoid interest.
👉 Want to avoid penalties and calculate advance tax correctly? Get expert guidance at Callmyca.com – where professionals simplify advance tax filing & keep your finances stress-free.
