Paying income tax is more like a national responsibility. That said, paying your taxes in advance can relieve you of stress arising from keeping it for the year-end. In this article, we talk about everything you need to know about advance tax.
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What is advance tax?
Paying a portion of your income tax liability for a financial year in advance or before the year-end is called an advance tax. It is payable when your income tax liability for a financial year equals or exceeds Rs 10,000. You only attract advance tax on the income generated in a year.
Advance tax due dates
Advance tax payment is to be done in instalments before the specified due dates.
For self-employed and individual businesses, the advance tax due dates and specified instalments are:
- 30% of advance tax liability to be paid on or before 15th Sep
- 60% of advance tax amount to be paid by 15th Dec
- 100% of advance tax liability to be paid on or before 15th Mar
For corporates, the advance tax due dates and specified instalments are:
- At least 15% of the advance tax liability to be paid on or before 15th Jun
- At least 45% of the advance tax liability to be paid by 15th Sep
- At least 75% of the advance tax liability to be paid on or before 15th Dec
- 100% of advance tax liability to be paid by 15th Mar
Who is liable to pay advance tax?
All categories of taxpayers including freelancers, salaried individuals, professionals, and senior citizens are liable to pay advance tax if the total tax liability for a financial year after adjusting TDS is over Rs 10,000. A list is:
- Your tax liability after TDS is Rs 10,000 or more
- You are a self-employed or a salaried individual
- You have earned capital gains on the sale of shares
- You have earned interest on fixed deposits
- You have received lottery income
- You receive rent or income from house property
- NRIs whose accrued income in India exceeds Rs 10,000
Advance tax payment for taxpayers under the purview of presumptive income
Businesses or professionals including (architects, lawyers, doctors, and consultants) under the purview of presumptive tax regime of Section 44AD are required to pay 100% advance tax liability by 15th Mar of the financial year.
How to calculate advance tax payment?
You can compute your advance tax liability by following these steps:
Step 1: Ascertain your estimated income other than salary for the given financial year
Step 2: Deduct your expenses such as rent, travel, and internet
Step 3: Add your salary income, if any
Step 4: Subtract TDS already deducted or likely to be deducted
Step 5: Compute tax payable as per your applicable income tax slab
Step 6: In case your tax liability after deducting TDS payment exceeds Rs 10,000, then you are liable to pay advance tax
Alternatively, you can also calculate your advance tax liability using the advance tax calculator available on the income tax department’s website.
Delay in the payment of advance tax
If you delay paying advance or pay less than 90% of the assessed/calculated tax amount, you attract a penalty of 1% monthly under Section 234B. The penalty is calculated as 1% interest on the defaulted amount for every month until you pay the advance tax completely. This penalty is applicable for the remaining instalments too.
Refund of advance tax
In contrast, had you paid more than the advance tax liability, you can claim a refund of the excess amount by submitting Form 30 within a year from the last assessment year. If the amount of advance tax paid is more than 10% of the liability, the Income Tax Department will pay you an interest of 6% p.a.
Process of paying advance tax
You can pay advance tax either online or offline. Both modes are explained below.
How to pay advance tax online?
Step 1: Visit Income Tax Department’s online tax payment portal
Step 2: Click on “Services” and then e-payement: Pay Taxes Online and select “Proceed” against Challan 280
Step 3: Choose Type of Payment as (100) Advance Tax
Step 4: Key in the required details such as address, assessment year, mode of payment. Enter the captcha code and click on ‘Proceed’
Step 5: Wait to be redirected to the online payment portal
Step 7: Here, verify your advance tax payment amount
Step 7: Save the payment challan for your reference when filing ITR
Offline mode of advance tax payment
Alternatively, you can also pay advance tax via offline mode. You can do so by submitting the challan at a bank authorised by the Income Tax Department.
Challan for advance tax
You are required to submit Challan 280 to make an advance tax payment online.
Exemption to advance tax payment
- Senior citizens aged 60 yrs and above and not involved in business or profession are exempted from paying the advance tax
- If the amount of TDS payment made is more than the tax liability for the year
- In case your income attracts TDS. For instance salary income. However, you need to pay advance tax on income other than salary
Advantages of advance tax payment
- Paying advance tax reduces your stress of paying it in lump at the last moment. This is especially helpful for businesses as their income tax liability can be huge
- It gives the government a regular source of income to meet development purposes
- It saves you from defaulting on your advance tax payment
- It gives you an idea of the income that you earn during the year
Paying advance tax is like paying EMIs to the Income Tax Department. Regular payment of the same relieves you of stress. Moreover, if you are liable to pay advance tax and fail to do so, you attract a penalty that adds to your overall expenses. Ergo, consider paying advance tax instalments on time.