Advance Tax & GST: Do You Need to Pay Both as a Business Owner?

As a business owner in India, you might wonder if you need to pay both advance tax and GST. While these are both important taxes, they are different and serve different purposes. It’s crucial to understand how each works so you can stay compliant with the law.

To help you decide whether you need to pay both, it’s important to understand how advance tax and GST work, who needs to pay them, and when. Let’s explore to get a better understanding of your tax responsibilities.

Advance Tax
GST (Goods and Services Tax)
Advance Tax & GST: Do You Need to Pay Both if You’re a Business Owner?
Key GST Changes from April 1, 2025
Conclusion
Most Asked Questions

Advance Tax

What is Advance Tax?

Advance tax means paying your income tax in installments throughout the year instead of paying it all at once. This is done to avoid a large tax payment at the end of the year.

If your business earns a certain amount, you must estimate your income for the year and pay the tax on that. If the tax liability is above INR 10,000, you are required to pay advance tax.

Who Needs to Pay Advance Tax?

Business owners: If your business earns income, you need to pay advance tax. This includes income from business, rent, interest, or capital gains.
Exemptions: Senior citizens (60 years or older) who do not earn income from business are exempt from advance tax.

Due Dates for Advance Tax Payment

Here are the important dates for paying advance tax:

Due Date	Percentage of Total Tax
June 15	15%
September 15	45%
December 15	75%
March 15	100%

This schedule helps you spread out your tax payments during the year, avoiding a big payment at the end.

GST (Goods and Services Tax)

What is GST?

GST is a tax on goods and services sold in India. It replaced several previous taxes, making the tax system simpler. Businesses charge GST on the goods and services they sell and pay the tax to the government.

There are different GST rates depending on the goods or services, ranging from 0% to 28%.

Who Needs to Pay GST?

Businesses with annual turnover above INR 40 lakhs: If your business earns more than INR 40 lakhs annually (or INR 20 lakhs in special states), you need to register for GST and start paying the tax.
Exemptions: Some small businesses and certain goods or services may be exempt from GST.

Advance Tax & GST: Do You Need to Pay Both if You’re a Business Owner?

Yes, as a Business Owner, You Likely Need to Pay Both

As a business owner in India, you are likely required to comply with both advance tax and GST obligations. These two taxes serve different purposes, and understanding when and why they apply is crucial for compliance.

Advance Tax applies to income tax and is required if your estimated tax liability exceeds INR 10,000 during the financial year. It is applicable to business owners who earn income from their business or profession, as well as from other sources like rent, dividends, or capital gains. Advance tax is paid in installments throughout the year based on projected income, helping the government maintain a steady flow of tax revenue.
GST is applicable to business owners whose annual turnover exceeds INR 40 lakh (INR 20 lakh for special category states). GST is a consumption-based tax on the supply of goods and services, and businesses must collect GST from their customers and remit it to the government. GST registration is mandatory for businesses that meet this turnover threshold.

While advance tax is related to income tax and is calculated based on projected profits, GST is a transaction-based tax and depends on the value of goods and services provided by the business. Therefore, both taxes apply separately and are based on different criteria. If your business exceeds the income and turnover thresholds for both taxes, you will need to fulfill both obligations to avoid penalties or legal complications.

Key GST Changes from April 1, 2025

Mandatory Multi-Factor Authentication (MFA)

Starting April 1, 2025, the Government of India will make Multi-Factor Authentication (MFA) mandatory for all GST taxpayers. This change aims to enhance the security and integrity of the GST filing process.

With MFA in place, businesses will need to authenticate their transactions using multiple forms of identification, such as a password and a one-time passcode (OTP). This added layer of security will help protect against fraud and unauthorized access to sensitive tax data.

While MFA will increase the security of the GST system, it may also require businesses to adjust their current processes and ensure they have the necessary systems in place to comply with this update. It is important for businesses to stay informed and prepare for this significant change, as failure to comply could lead to delays in filing or access restrictions.

E-Way Bill and E-Invoice Updates

In addition to the MFA requirement, there will also be important updates regarding e-way bills and e-invoices starting from April 1, 2025. These changes are aimed at improving compliance and efficiency within the GST system.

E-Way Bill Updates: The government will implement enhanced security features for e-way bills, which are required for the transport of goods above a certain value. These updates will help prevent unauthorized access and improve tracking of goods in transit. Businesses will need to ensure their systems are capable of generating e-way bills with these new features.
E-Invoice Updates: The introduction of enhanced security measures for e-invoices is intended to ensure that all invoices are authentic and comply with the GST regulations. E-invoices are currently mandatory for businesses with a turnover exceeding INR 10 crore, and these updates will make it easier for tax authorities to track transactions in real time. Businesses will need to update their invoicing systems to align with the new requirements.

Both of these updates will likely require businesses to invest in updated software systems and adjust their operations to meet the new compliance standards. Staying ahead of these changes will ensure that your business remains compliant and avoids penalties.

Conclusion

As a business owner, it’s crucial to understand both advance tax and GST obligations. While advance tax is paid in installments based on projected income, GST is a consumption tax on the goods and services you provide, applicable if your turnover exceeds the threshold.

Understanding these taxes and their distinct requirements will help ensure that your business remains compliant with Indian tax laws. Furthermore, keeping track of upcoming GST updates, such as MFA and changes to e-way bills and e-invoices, will ensure that your business is prepared for the new regulations taking effect from April 2025. Stay informed and proactive to avoid penalties and streamline your tax compliance process.

FAQs

1. Can I pay advance tax in a lump sum instead of installments?

No, advance tax must be paid in installments throughout the financial year as per the due dates specified by the Income Tax Department. If your total tax liability exceeds INR 10,000, you are required to make payments in the prescribed quarterly installments.

2. What happens if I miss an advance tax installment?

If you miss an advance tax installment, you may be liable for interest under Section 234B and Section 234C for delayed payments. The interest is calculated on the amount due and the number of days it is delayed. It is advisable to make payments on time to avoid penalties.

3. Can I adjust advance tax paid against my GST liability?

No, advance tax and GST are separate taxes. Advance tax is related to income tax, while GST is a consumption-based tax on the supply of goods and services. You cannot offset one against the other, and both must be paid separately.

4. Is GST applicable to all business owners?

GST is applicable to business owners whose annual turnover exceeds INR 40 lakh (INR 20 lakh for special category states). If your turnover is below this threshold, you may not need to register for GST unless you are involved in interstate supply or are voluntarily opting for GST registration.

5. If my business turnover is below the GST threshold, do I still need to pay advance tax?

Yes, if your estimated tax liability for the year exceeds INR 10,000, you must pay advance tax, regardless of whether you are required to pay GST. Advance tax is based on your income and is independent of GST registration.

6. Can I opt for the GST composition scheme if my turnover is below INR 1.5 crore?

Yes, businesses with an annual turnover up to INR 1.5 crore (INR 75 lakh for special category states) can opt for the GST composition scheme. This allows businesses to pay GST at a lower rate based on turnover but limits the ability to claim input tax credit (ITC).

7. Are there any exemptions for paying advance tax if I am a small business owner?

There are no specific exemptions for small business owners. However, if your total tax liability is below INR 10,000, you are not required to pay advance tax. Small business owners whose income exceeds this threshold must comply with advance tax payments.

8. What is the penalty for not paying GST on time?

Failure to pay GST on time may attract a late fee along with interest on the outstanding amount. The late fee is typically INR 50 per day (INR 25 each for CGST and SGST) for delayed payments. The interest rate for delayed payment is 18% per annum.

9. Can I claim input tax credit (ITC) on GST paid if I am under the composition scheme?

No, businesses under the GST composition scheme cannot claim input tax credit (ITC) on purchases. This scheme is designed to simplify GST compliance but limits some benefits such as ITC and the ability to collect tax at a higher rate.

10. Are there any specific provisions for GST for online businesses?

Yes, online businesses are subject to the same GST provisions as traditional businesses. However, if you are selling goods or services online through platforms like Amazon or Flipkart, you may be required to comply with additional GST collection at source (TCS) provisions. This means that the platform will collect GST on behalf of the seller.

11. If I am a sole proprietor, am I eligible to pay advance tax?

Yes, sole proprietors are required to pay advance tax if their total income exceeds INR 10,000 in tax liability. This applies to income earned from business, profession, and other sources like capital gains and interest.

12. How will the GST changes in April 2025 affect my business?

Starting from April 1, 2025, businesses will be required to implement multi-factor authentication (MFA) for GST filings, which will enhance security. Additionally, e-way bill and e-invoice updates will be introduced, making compliance more secure and streamlined, although businesses must ensure they have the necessary systems in place for these changes.