Advance Tax

Advance tax is a tax payable to individuals who have another source of income also apart from salary. The other source of income could be your lottery winning, fixed deposit, shares, etc. You can make advance tax payments to justify these earnings. The advance tax is also known as the ‘Pay as you earn scheme’. You are liable to pay advance tax if your tax liability is exceeding Rs 10,000 in a financial year.

Advance Tax Payment Exemptions :

  • All senior citizens are exempted from paying advance tax.
  • Salaried individuals falling under the TDS net are exempted from paying advance tax. But if earnings are from sources like capital gains, rent, interest, and other non-salary income, it will attract advance tax.
  • If the TDS deduction is more than the tax payable for the year, one does not have to pay advance tax.

How to make advance tax payments ?

One can make advance tax payments through challans at bank branches authorized by the Income Tax Department like ICICI Bank, Reserve Bank of India, Reserve Bank of India, etc. Another way of advance tax payment is by paying it through the Online tax payment website of the Income Tax Department or the National Securities Depository.

Assumptions : Annual Gross Income: Rs.15,00,000
Expenses (Estimate): Rs.8,00,000,.
PPF: Rs.30,000
LIC Premium: Rs.20,000
Medical Insurance: Rs.10,000
TDS (Estimate): Rs.20,000
Fixed Deposit Interest: Rs.8,000

Advance Tax Amount
Gross Income 1500,000
Expenses 800,000
Balance 700,000
Fixed Deposit Interest 8000
Gross Total Income 700,8000
PPF Contribution Rs 30,000
LIC Rs 20,000
Medical Insurance Rs 10,000
Balance 648000
Payable Tax 42100
Education Cess 1684
Total 43784
TDS 20,000
Advance Tax to be paid 23784

Due Dates for Advance Tax Payment :

Payment Due Date Amount to be paid as advance tax
On or before 15 June 15% of the Advance Tax
On or before 15 September 45% of the Advance Tax minus the Advance Tax that has been paid
On or before 15 December 75% of the Advance Tax minus the Advance Tax that has been paid
On or before 15 March 100% of the Advance Tax minus the Advance Tax that has been paid

Steps of paying Advance Tax Onlinet :

The advance tax paid online. Here are the steps to follow:

  • Log on to the website www.tin-nsdl.com.
  • Click on the option "Services" - e-payment: Pay Taxes Online
  • Select the right challan to pay your income tax (Advance tax)
  • Fill in the correct details in the form. You'll have to fill in details such as the right assessment year, address, phone number, email address, bank name, captcha code, and other important details.
  • Once you are done filling in the details, you'll be redirected to the bank's Net Banking page.
  • Next, you'll get details of your payment including your challan number.
  • It is important to report your payment after you've made the payment. You can do so by adding an additional entry under the paid tax page.

Advance Tax Challan 280 :

Through Challan 280, one can pay advance tax online. On the website, people have to select this challan and fill out the form. For offline payment, you need to download challan 280, fill the same, and submit it to the bank.

Benefits of Paying Advance Tax :

  • Expedite the tax collection process
  • Increases government funds as one can earn interest on the collected amount.
  • Advance tax payment saves people from defaulting on their tax payments.
  • It helps businesses in managing their finances well and provides an idea of the income they have earned during the year.

How to Calculate Advance Tax Payment?

These are the heads of income that should be considered for the income earned: Income from other sources of income as interest earned from FDs, savings accounts, etc.

  • Capital gains
  • Professional income
  • Rental income

Income from other sources as interest earned from FDs, savings accounts, etc.

  • Capital gains
  • Professional income
  • Rental income

Income of minors if it is added to that of the taxpayer Any other income Add your salary to the above total to arrive at the gross taxable income. Calculate the tax payable by applying the latest income tax slab that applies to you. As per the TDS slab, deduct the TDS that is likely to get deducted or which has already been deducted. If your tax liability after the deduction of TDS exceeds Rs.10,000, you are liable to pay advance tax.

Process of Refund in Advance Tax Payment :

At the end of the year, if the Income Tax Department finds out that you have paid more tax than you should have, then it will refund the excess amount. To claim the refund, you need to submitForm 30.

Interest applicable on late payment of Advance Tax :

If making payment of Advance Tax after crossing due dates, then you are liable to pay interest on the late payment. If your advance tax is not paid according to schedule, then you will have to pay interest on the late payment. The interest payable can be rounded off to the nearest hundred.

This interest falls under Two sections:

  • Section 234C
  • Section 234B

Under this section, if advance tax is not paid as per the schedule, an interest of 1% will be levied. This interest is for deferment in instalments of advance tax. You will have to pay interest of 1% on advance tax if you do not pay on installment.

Interest for Default in Payment of Advance Tax Under Section 234B :

Under this section, if you missed paying 90% of the tax payable before the end of the fiscal year, then an interest of 1% is applicable. That is, if have either not paid any tax for an assessment year, or paid less than 90% of the advance tax due, then you'll have to pay 1% simple interest on the tax dues. This would be considered as defaulting on tax payments.

If you have not paid tax even at the beginning of the next financial year; then the interest is calculated from April 1 of the new fiscal year, until total income is determined under Section 143(1), or until when self-assessment tax is paid, whichever is earlier.

In addition to this, if you have been given a refund by the Income Tax Department but on assessment, it is found that no refund or less refund was due to the taxpayer, then you would be asked to return the excess refund with an interest of 0.5%

Illustration 1 : Rakesh’s total tax liability is Rs 54,000. He paid this amount on July 9th while filing his tax returns. His total tax liability exceeds Rs.10,000, so he has to pay advance tax and is also liable to pay interest under Section 234B.
To calculate the interest :
Rs 54,000 x 1% x 4 months = Rs 2,160
Sreekanth has to pay advance tax of Rs.2,160 as per Section 234B.

Frequently Asked Questions

  • Do NRIs also required to pay advance tax?
    Yes, if your income is exceeding Rs 10,000 in a financial year, you need to pay advance tax.
  • I missed making advance tax payment on 15th March? What should I do?
    In case you miss the deadline of paying your fourth installment on 15 March, you can make the payment by 31 March.
  • If my advance tax payment is more than the tax liability? What to do?
    If the advance tax paid is more than the total tax liability, you can claim a refund. If the advance amount is above 10% of the tax liability, then an interest of 6% p.a. will be paid by the IT Department.
  • What are the advance tax penalties on making late or missed payment?
    Yes, a penalty of 1% will be levied if the advance tax is not paid by the due date.
  • Is there any limit above which advance tax must be paid?
    If the tax amount that must be paid in a financial year is more than Rs.10,000, advance tax must be paid.
  • Are senior citizens exempt from paying advance tax?
    Individuals who are more than 60 years of age and do not have an income that is chargeable under Profits and gains of business and profession are exempt from paying advance tax.