Understanding The Concept of Advance Tax
Instead of making a lump sum payment of tax at the end of the year, advance tax is the income tax that you pay as you earn. These payments are made in instalments according to the due dates that are provided by the income tax department.
Table of Contents
- What is advance tax?
- Who has to pay advance tax?
- How to calculate advance tax?
- Interest charged on advance tax payment
- How to pay advance tax online?
What is Advance Tax?
Advance tax is a type of income tax paid online in advance for an income earned in a specific financial year. This tax is paid when income is earned. However, the taxpayer needs to estimate the income for an entire year.
Who has to pay Advance Tax?
According to section 208 of the Income Tax Act, the taxpayer has the advance tax liability when:
- Tax liability is either 10,000 or more within a financial year. It means that certain allowances along with total income minus deductible expenses are more than 10,000 in taxes.
- All companies and businesses have to make advance tax payments in instalments throughout the year.
- In terms of sources, if your salary is more than 2.5 lakh rupees per year, TDS is deducted as advance tax.
- In case, the total income is more than 5 lakh rupees, then you need to pay additional advance tax.
- Any income from rent, capital gains, professional fees, capital gains and business profit is an income from rent. These are not subjected to TDS. In case, they contribute to the total income, you will have to pay advance tax yourself.
Exception: A resident senior citizen who is 60 or above without any income from a business or profession does not have to pay advance tax.
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How to Calculate Advance Tax?
Calculating advance tax can seem complex, but it's essentially based on estimating your total income and tax liability for the year and making payments in instalments throughout the year. Here's a breakdown of the steps:
- Estimate your Total Income:
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- Salary: Consider your annual salary, including any bonuses or allowances. If your employer deducts TDS, keep track of the total deducted throughout the year.
- Other Income: Add income from other sources like rental income, interest income, capital gains, business profits, etc.
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- Calculate Taxable Income: Subtract eligible deductions from your total income. Common deductions include expenses under Section 80C (like investments, tuition fees), medical insurance premiums, home loan interest, etc.
- Determine Tax Liability: Based on your taxable income, refer to the applicable income tax slab rates for individuals (currently ranging from 5% to 30%). Calculate the total tax you would owe for the entire year.
- Calculate Advance Tax Installments:
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- You need to pay advance tax in four instalments throughout the year:15th June - 15% of the estimated tax liability
- 15th September - 45% of estimated tax liability
- 15th December - 75% of estimated tax liability
- 15th March (next year) - The remaining balance of estimated advance tax liability
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- Consider TDS: If your employer deducts TDS from your salary, subtract the total TDS deducted throughout the year from your calculated advance tax payments
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Interest charged on Advance Tax Payment
- Section 234C of the Income Tax Act, 1961, deals with the interest charged for default or deferment in the payment of advance tax installments.
- If a taxpayer fails to pay, or pays less than the required advance tax by due installment dates, they have to pay interest under Section 234C.
- The interest is charged if the advance tax paid is less than the prescribed percentage of the assessed tax for each of these periods.
- It is important to note that there are exceptions to paying interest under Section 234C.
- For example, a resident senior citizen with no income under the 'PGBP' heading is exempt, and if the net tax liability is less than Rs. 10,000, no interest is charged under this section.
How to Pay Advance Tax Online?
In order to pay advance tax online, you can follow the below-given steps:
- Calculate Your Advance Tax: Before making the payment, determine your advance tax liability by estimating your total annual income and applying the applicable tax rates.
- Visit the e-Filing Portal: Go to the Income Tax Department's e-filing portal.
- Select 'e-Pay Tax' Option: On the home page, look for the 'e-Pay Tax' option in the 'Quick Links' section or use the search bar to find it.
- Fill in Required Details: Complete the necessary details on the e-Pay Tax page and proceed.
- OTP Verification: An OTP is sent to your registered mobile number for verification.
- Complete the Payment: After entering the OTP, follow the instructions to complete the payment process.
FAQs
What is the due date for advance tax payment?
For individuals, the due dates for advance tax payments are usually as follows:
- 15th June: 15% of advance tax
- 15th September: 45% of advance tax
- 15th December: 75% of advance tax
- 15th March: 100% of advance tax
These dates might vary slightly each year and are different for corporate taxpayers.
What happens if advance tax is not paid?
Non-payment or delay in payment of advance tax can result in the imposition of interest under sections 234B and 234C of the Income Tax Act.
Can advance tax be paid online?
Yes, advance tax can be paid online through the official tax department website or the respective bank's website.
Is it mandatory for salaried employees to pay advance tax?
Salaried individuals whose tax is deducted at source (TDS) by their employer might not have to pay advance tax unless they have other sources of income.
What are the consequences of paying excess advance tax?
If you pay more tax as advance tax than your actual tax liability, you will be entitled to a refund.
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