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.
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,.
LIC Premium: Rs.20,000
Medical Insurance: Rs.10,000
TDS (Estimate): Rs.20,000
Fixed Deposit Interest: Rs.8,000
|Fixed Deposit Interest||8000|
|Gross Total Income||700,8000|
|PPF Contribution||Rs 30,000|
|Medical Insurance||Rs 10,000|
|Advance Tax to be paid||23784|
|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|
The advance tax paid online. Here are the steps to follow:
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.
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.
Income from other sources as interest earned from FDs, savings accounts, etc.
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.
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.
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:
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.
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.