Demystifying Advance Tax: What You Need to Know

Key Takeaways:

1. Advance tax refers to the payment of taxes for a financial year during the duration of the financial year, instead of paying it at the time of income tax return filing.

2. It is payable during a financial year where the amount of tax payable is INR 10,000 or more.

3. Provisions of advance tax do not apply to an individual resident in India if they do not have any income chargeable under the head ‘Profits and Gains from business or profession’ and are 60 years of age or more at any time during the previous year.

4. Advance tax is computed by taking the estimated income from all sources, reducing it by investments under chapter VI A deductions, rebates, and any available TDS.

5. Due dates for payment of different instalments of advance tax vary, with the whole tax liability needing to be paid by 15th March, and the option to pay until 31st March.

6. Delay in paying advance tax beyond 15th March incurs interest under section 234B (of Income Tax Act, 1961) and section 234C (of Income Tax Act, 1961), which is charged at the time of return filing.

7. Advance tax can be paid via net banking or over the counter by posting respective details in the challan.

Synopsis:

Advance tax, in simple terms, refers to the payment of taxes for a financial year during the duration of the financial year, instead of paying it at the time of income tax return filing. It is also known as “pay as you earn” tax. This means that taxpayers are required to estimate their income for the year and pay the tax in instalments throughout the year rather than in a lump sum at the end of the year.

The liability to pay advance tax arises when the amount of tax payable is INR 10,000 or more for a financial year, as per section 208 (of Income Tax Act, 1961). However, there are exceptions to this rule. For instance, an individual resident in India is not liable to pay advance tax if they do not have any income chargeable under the head ‘Profits and Gains from business or profession’ and are 60 years of age or more at any time during the previous year.

The computation of advance tax involves estimating the income from all sources, such as salary, house property, profits from business or profession, capital gains, and other sources. This estimated income is then reduced by investments under chapter VI A deductions, rebates, and any available TDS. The balance amount, if it exceeds INR 10,000, needs to be paid within the financial year.

The due dates for payment of different instalments of advance tax vary. Taxpayers are required to pay a minimum of 15% of the advance tax by 15th June, 45% by 15th September, 75% by 15th December, and 100% by 15th March. It’s important to note that the entire tax liability needs to be paid by way of advance tax by 15th March, with the option to pay until 31st March. However, a delay in paying advance tax beyond 15th March incurs interest under section 234B (of Income Tax Act, 1961) and section 234C (of Income Tax Act, 1961), which is charged at the time of return filing.

Taxpayers can pay advance tax via net banking or over the counter by posting respective details in the challan.

Here are some frequently asked questions about advance tax:

1. Can I pay entire advance tax in the Month of March?

Yes, if you have missed paying the advance tax in the respective quarters, you can make the entire advance tax payment by the 15th of March (due date for the 4th instalment) and latest by 31st of March. However, interest will be levied under Section 234B (of Income Tax Act, 1961) and Section 234C (of Income Tax Act, 1961), which will be calculated at the time of return filing.

2. Can I pay advance tax as a lump sum amount based on my last year’s tax amount?

Taxpayers can pay the amounts in lump sum in the respective instalments. However, if the advance tax paid is less than the minimum tax to be paid by the instalment date, interest under 234B and 234C will be levied for the differential amount.

3. I had estimated the Tax liability for the year as Rs.1 lakh and paid the first instalment accordingly, however my employer deducted my TDS of Rs.30,000 in the month of July, how should I pay the further Advance tax instalment?

In this scenario, the further advance tax instalments need to be calculated after deducting the TDS amount from the total tax payable. The remaining tax payable should be distributed across the subsequent instalments.

4. Can I pay Advance tax by myself or need any expert advice for the same?

Taxpayers who are well-versed with the calculations can pay advance tax by themselves. However, consulting a tax consultant or CA for advance tax calculation is advisable if needed.

FAQ:

Q1: Can I pay entire advance tax in the Month of March if I was unaware about advance tax payment and calculation?

A1: Yes, you can make advance tax payment of the entire tax by the 15th of March (due date for the 4th instalment) and latest by 31st of March. Interest will be levied under Section 234B (of Income Tax Act, 1961) and Section 234C (of Income Tax Act, 1961), calculated at the time of return filing.

Q2: Can I pay advance tax as a lump sum amount based on my last year’s tax amount if I am unable to estimate my total income for the current financial year?

A2: You can pay the amounts in lump sum in the respective instalments, but if the advance tax paid is less than the minimum tax to be paid by the instalment date, interest under 234B and 234C will be levied for the differential amount.

Q3: I had estimated the Tax liability for the year as Rs.1 lakh and paid the first instalment accordingly, however my employer deducted my TDS of Rs.30,000 in the month of July, how should I pay the further Advance tax instalment?

A3: In this scenario, the further advance tax instalments need to be calculated after deducting the TDS amount from the total tax payable. The remaining tax payable should be distributed across the subsequent instalments.

Q4: Can I pay Advance tax by myself or need any expert advice for the same?

A4: If you are well-versed with the calculations, you can pay advance tax by yourself. However, consulting a tax consultant or CA for advance tax calculation is advisable if needed.