Most people think income tax is something you pay once a year when you file your return. But if you run a business, a partnership, or a company, the law doesn't wait that long. It asks you to pay your tax in four parts during the year — this is called advance tax.
The good news: advance tax is not an extra tax. It's your own tax bill, just paid earlier and in instalments. Everything you pay is subtracted from your final bill at the end of the year — and if you paid too much, you get it back.
In one line: Advance tax means paying your yearly tax in four quarterly instalments instead of one big payment at filing time. It is fully adjustable — you get credit for every rupee, and any extra is refunded.
Quick Check — Do You Even Have to Pay?
Before anything else, find yourself in this list:
| You are… | Do you pay advance tax? |
|---|---|
| A company | Yes — every quarter, whatever your income |
| A partnership firm (AOP) | Yes — every quarter, whatever your income |
| A business owner / self-employed person | Only if your last assessed income was Rs 1 million or more |
| A salaried person (salary only) | No — your employer already deducts it monthly |
The Rs 1 million rule for individuals: Take the income that was assessed on your last return. Leave out your salary, and leave out any income where the tax was already full-and-final. If what remains is less than Rs 1,000,000, you don't pay advance tax at all. If it is Rs 1,000,000 or more, you do.
Which Income Is Left Out?
Not every rupee you earn counts towards advance tax. These types of income are simply kept out of the calculation:
| Income Left Out | Why |
|---|---|
| Your salary | Your employer already cuts tax from your pay every month, so there's nothing left to pay in advance |
| Dividends you receive | Tax on dividends is handled separately when the company pays you (Section 5) |
| Certain payments made to people living abroad | Tax is already taken at the time the non-resident is paid (Section 6) |
| Shipping and air transport income of foreign operators | Non-resident shipping and airlines have their own special tax treatment (Section 7) |
| Final tax income (FTR) | The tax already deducted on it is full and final — nothing more is owed, so no advance tax applies |
What is "final tax" income? It's income where the tax cut at the time of payment settles the matter completely — you don't add it to your other income and you don't pay again on it. Because that tax is already done and dusted, advance tax is never charged on it.
Salaried, but you also have a business? Your salary stays out of it — but your business income doesn't. If that side income is big enough to cross Rs 1 million, advance tax applies to that part. Being on a payroll doesn't automatically protect you.
When Do You Pay? — The Four Dates
Advance tax is paid four times a year. Mark these in your calendar:
| Quarter | Months | Individual | Company / AOP |
|---|---|---|---|
| 1st | July – September | 15 September | 25 September |
| 2nd | October – December | 15 December | 25 December |
| 3rd | January – March | 15 March | 25 March |
| 4th | April – June | 15 June | 15 June |
Notice the last one: everybody pays by 15 June — two weeks before the tax year ends on 30 June. Don't wait for the year to close.
How Much Do You Pay? — Step by Step
There are two different ways to work it out. Which one you use depends on whether you're an individual, or a company/AOP.
If you are a business individual
Take last year's tax bill, divide it by 4, then subtract any tax already deducted from you this quarter.
(Last year's assessed tax ÷ 4) − tax already deducted this quarter
Worked example — Mr. Bilal, a trader
Last year his assessed tax was Rs 800,000. During this quarter, Rs 50,000 was already deducted from his payments.
| Step 1 — Last year's tax | Rs 800,000 |
| Step 2 — Divide by 4 (one quarter's share) | 800,000 ÷ 4 = Rs 200,000 |
| Step 3 — Minus tax already deducted this quarter | − Rs 50,000 |
| He pays this quarter | Rs 150,000 |
One thing people get wrong: in Step 3, you cannot subtract the tax your employer cut from your salary. Salary tax is separate — it never reduces your advance tax instalment.
If you are a company or an AOP
Work out last year's tax rate on sales, apply it to this quarter's sales, then subtract tax already deducted this quarter.
(This quarter's sales × last year's tax ÷ last year's sales) − tax already deducted this quarter
Worked example — a trading company
Last year: tax of Rs 2,000,000 on sales of Rs 100,000,000. This quarter: sales of Rs 30,000,000, with Rs 200,000 already deducted.
| Step 1 — Last year's tax rate on sales | 2,000,000 ÷ 100,000,000 = 2% |
| Step 2 — Apply that rate to this quarter's sales | 30,000,000 × 2% = Rs 600,000 |
| Step 3 — Minus tax already deducted this quarter | − Rs 200,000 |
| The company pays this quarter | Rs 400,000 |
Worked example — a partnership firm (AOP)
Last year: tax of Rs 1,200,000 on sales of Rs 60,000,000. This quarter: sales of Rs 15,000,000, with Rs 100,000 already deducted.
| Step 1 — Last year's tax rate on sales | 1,200,000 ÷ 60,000,000 = 2% |
| Step 2 — Apply to this quarter's sales | 15,000,000 × 2% = Rs 300,000 |
| Step 3 — Minus already deducted | − Rs 100,000 |
| The AOP pays this quarter | Rs 200,000 |
Don't know this quarter's sales yet? You can't skip the payment by not reporting them. In that case your sales are taken to be one-fourth of 120% of last year's total sales — which usually works out higher than reporting honestly.
New business with no history? A company or AOP still has to pay. If there's no last assessed income or declared sales to work from, you estimate the amount based on your quarterly sales and pay that, adjusting for anything already paid.
Also count super tax and minimum tax: when you look up "last year's tax", it includes your super tax and minimum tax liability too — not just the ordinary income tax. Leaving those out will make your instalment too small.
What If This Year Is Different?
Your income has dropped — you can pay less
If your business is having a bad year and you can see that your real tax will be lower than the formula suggests, you don't have to overpay. You can send FBR an estimate of what you actually expect to owe and pay that instead, spread over the dates that haven't passed yet.
But your estimate must be backed up. Just saying "business is slow" isn't enough. You need to include:
- Your actual sales for the quarters already finished
- Your expected sales for the rest of the year, and why they've dropped
- Proof of the expenses or deductions that make your tax lower
- Proof of tax you've already paid
- A working of your expected income for the year
If the details are missing or unconvincing, the Commissioner can reject your estimate — after giving you a chance to explain — and then you're back to paying the full formula amount.
Your income has grown — you may have to pay more
Companies and AOPs have a duty most people don't know about. Before the second instalment is due, you must work out what your tax for the whole year is likely to be. If it looks like it will be more than the formula amount, you must tell FBR and pay half of that bigger figure by the second-quarter date, then the other half in two equal parts with the third and fourth instalments.
Special Cases
Selling shares and securities
If you make gains from selling securities, there's a separate advance tax on those gains, based on how long you held them:
| You held it for… | Advance tax on the gain |
|---|---|
| Less than 6 months | 2% of the gain made in that quarter |
| Between 6 and 12 months | 1.5% of the gain made in that quarter |
This must be paid within 21 days after each quarter ends. Good news for ordinary investors: this does not apply to individual investors.
Builders and property developers
If you build and sell houses, shops or buildings, or develop and sell plots, you pay advance tax project by project, in four equal instalments, at the rates set for this purpose — on the same quarterly dates as everyone else.
Real Situations — Where Do You Fit?
1. Salaried person, nothing else
Mr. Kamran earns Rs 3,000,000 in salary. No business, no rental income.
He pays nothing in advance. His employer already deducts tax every month. He just files his return at year end.
2. Small business, income below Rs 1 million
Ms. Ayesha runs a boutique. Her last assessed income was Rs 750,000.
She pays nothing in advance. She's below the Rs 1 million mark, so advance tax simply doesn't apply to her. She pays her tax when she files.
3. Trader above the limit
Mr. Bilal's last assessed tax was Rs 800,000, and Rs 50,000 has already been deducted this quarter.
He pays Rs 150,000 this quarter. (800,000 ÷ 4 = 200,000, minus the 50,000 already deducted.)
4. Salaried person who also earns rent
Mrs. Nadia earns Rs 4,000,000 salary plus Rs 1,800,000 rent from two shops.
Her salary is out of it, but the rent isn't ignored. Rent is taxed as property income at the normal slab rates. Separately, her tenant deducts tax on the rent when paying her — that's a withholding tax, a different thing from advance tax. That deducted amount is adjustable and counts as tax already paid.
5. Someone whose income is all final tax
A person's only income is from a source where the tax was already full and final.
No advance tax at all. Final tax income is completely left out of the advance tax calculation — the tax on it is already finished.
6. A brand new company
A company started this year and has no previous assessment.
It still has to pay. With no history to work from, it estimates the amount based on its quarterly sales and pays that.
What Happens If You Don't Pay?
- You'll owe extra. A default surcharge is added on whatever you were short, for the whole period you were late.
- FBR can recover it. Unpaid advance tax is treated just like tax owed under a formal assessment, so the normal recovery powers apply.
- Your cash flow takes a hit. Instead of four manageable payments, the whole year's tax lands on you at once when you file.
The reassuring part: everything you pay in advance is credited against your final tax bill. And if it turns out you paid more than you owed for the year, the extra is refunded to you. You never lose it — so keep every challan.
Frequently Asked Questions
Do I have to pay advance tax?
If you're a company or AOP — yes, every quarter, regardless of income. If you're an individual — only if your last assessed income (leaving out salary and final tax income) was Rs 1,000,000 or more.
Do salaried people pay advance tax?
Not on salary. Your employer already deducts it monthly. But if you also have business income large enough to cross the limit, advance tax applies to that part.
Is advance tax an extra tax?
No. It's your own yearly tax paid in four parts. Every rupee is credited against your final bill, and any excess is refunded.
Is advance tax charged on final tax income?
No. Final tax income is left out completely, because the tax on it was already settled in full when it was deducted.
Can I pay less if business is bad?
Yes — you can file an estimate of the lower amount. But it must include your actual and expected sales, the reason for the drop, proof of expenses, and a working of your expected income. A weak estimate can be rejected.
What if I don't know this quarter's sales?
Then your sales are taken as one-fourth of 120% of last year's sales — usually more than the real figure. It's better to report properly.
Summary
| You are | How it's worked out | Pay by |
|---|---|---|
| Company | Last year's rate on sales × this quarter's sales, minus tax deducted | 25 Sep, 25 Dec, 25 Mar, 15 Jun |
| AOP (partnership) | Same as company | 25 Sep, 25 Dec, 25 Mar, 15 Jun |
| Business individual (income Rs 1M or more) |
Last year's tax ÷ 4, minus tax deducted (not salary tax) | 15 Sep, 15 Dec, 15 Mar, 15 Jun |
| Salaried (salary only) | Nothing to pay | Deducted monthly by employer |
| Final tax income | Left out entirely — no advance tax | — |
Bottom Line: Advance tax just spreads your tax across the year instead of one painful payment at the end. Companies and partnerships pay every quarter based on their sales. Business individuals pay a quarter of last year's tax — but only if that income was Rs 1 million or more. Salary and final tax income stay out of it completely. Pay on time, keep your challans, and claim every rupee back in your return. Want to work out your yearly tax first? Try our Business Tax Calculator or AOP Calculator.
Disclaimer: This article explains advance tax under Section 147 of the Income Tax Ordinance, 2001 in simple terms for educational purposes. Thresholds, dates and rules change through Finance Acts and FBR notifications. Always check the current position at fbr.gov.pk or speak to a qualified tax practitioner before acting.
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