Advance Tax Under Income Tax

What is Advance Tax under Income Tax?

Income Tax is one of the major sources of revenue for the government and it is filed once a year. To ensure uniform collection of taxes, Taxpayer’s having Tax Liability Rs. 10,000/- or more are required to deposit Income tax in advance 4 Installments instead of paying one lump sum amount.

Who should Pay Advance Tax?

As per section 208, every person whose estimated tax liability for the year is Rs. 10,000/- or more, shall pay his tax in advance, in the form of “advance tax”.

The Advance tax applies to all taxpayers individuals to corporate including salaried, businessman, freelancers, professionals and person having any sources of income. there are some exceptions as below:

  • Senior citizens (above the age of 60 years) who do not run a business, are exempt from paying advance tax.
  • The taxpayers who have opted for a presumptive taxation scheme under section 44AD(Presumptive income for Businesses) or 44ADA(Presumptive income for Professionals) have to pay full advance tax in one installment on or before 15 March. They also have an option to pay all of their tax dues by 31 March.
  • If the TDS deducted is more than or equal to the tax payable for the year, one is exempted from paying advance tax.
  • Salaried Employees having no income other than salary and appropriate Tax is been deducted from the salary income

How Advance Tax is Calculated?

Advance tax is calculated on the basis of estimated income to be earned in a financial year by the taxpayer as follows:

  1. Estimate income for the Financial Year from all sources i.e. Salary, Rental Income, Business/ Profession, Capital Gain, Other Sources, etc.
  2. Calculate total Tax Liability on the estimated income by applying the latest applicable Income tax slab.
  3. Now on calculated Tax subtract all TDS and TCS that already get deducted from the source.
  4. Note that sometimes, you may not be able to estimate the exact income correctly and at the end of the year, may find the income to be more than what you had expected. Hence, it is advisable to estimate the income carefully and pay a slightly higher advance tax to avoid interest thereon.
  5. After making payment of first or second or third installment of advance tax (as the case may be), if there is a change in the tax liability, then the taxpayer can revise the quantum of advance tax in the remaining installment(s) and pay the tax as per revised estimates

What are the Advance Tax Due Dates?

Advance Tax Due DatesAdvance Tax Installment Amount
On or before 15th JuneNot less than 15% of advance tax liability
On or before 15th SeptemberNot less than 45% of advance tax liability
On or before 15th DecemberNot less than 75% of advance tax liability
On or before 15th March100% of advance tax liability

For taxpayers who have opted for Presumptive Taxation Scheme under section 44AD & 44ADA

Advance Tax Due DatesAdvance Tax Installment Amount
 On or before 15th March100% of advance tax

Note 1: Any tax paid till 31st March will be treated as advance tax.

Note 2: If the last day for payment of any installment of advance tax is a day on which the banks are closed, then the taxpayer should pay the advance tax on the immediately following working day [Circular No. 676, dated 14-1-1994].

How To Pay Advance Tax?

As per Rule 125 of the Income-tax Rules, 1962 a corporate taxpayer (i.e., a company) shall pay taxes through the electronic payment mode using the internet banking facility of the authorised banks.

Taxpayers other than a company, who are required to get their accounts audited, shall pay taxes through the electronic payment mode using the internet banking facility of the authorised banks.

Any other taxpayer can pay tax either by electronic mode or by physical mode i.e. by depositing the challan at the receiving bank.

Consequences of Non/ Less Payment of Advance Tax.

Interest under section 234B:- If you fail to pay advance tax or the tax paid by you is less than 90% of the assessed tax, then you will be liable to pay simple interest at 1% every month. In case no advanced tax is paid, interest will be calculated on the amount which is equal to the tax levied, or else it will be calculated on the amount by which advance tax paid falls short of the assessed tax.

Interest under section 234C:- In case if you don’t pay your due advance tax installment in time then you will be charged a simple interest of 1% for the next 3 months on the amount of shortfall as a penalty. The penalty is purely due to the delay in paying the due advance tax.

To pay advance tax online through net banking or debit card click here

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