Advance tax payment is a system wherein taxpayers pay a share of their tax liability before the end of the year. It is often looked at as a tax EMI. To make the most of this tax payment regime, one must become familiar with all its aspects in due advance.
In simple words, paying tax liabilities before the end of a fiscal year is called an advance tax or pay-as-you-earn scheme. It is payable when the tax liability of an individual exceeds Rs.10000 in a given fiscal year. Notably, such a tax is paid in instalments on due dates and is paid in the same year the income is generated.
It is considered to be favourable for the government as it facilitates a smooth and constant flow of income around the year. In case the estimate of a taxpayer’s income increases or decreases as the instalment progresses, then the payable advance tax amount can be adjusted accordingly.
Typically, a minimum of 15% of tax liability is expected to be paid either on the 15th of June or before. 45% of it is expected by 15th of September, whereas, at least 75% must be paid by 15th December. Subsequently, the entire advance tax liability should be covered by the 15th of March.
It must be noted that the amount of advance tax payable on due dates varies among different categories of taxpayers. Also, NRIs, whose accrued income in India exceeds Rs.10,000 are liable for income tax advance tax payment.
These tables below offer a clear idea about the advance tax due dates and liability for different categories of taxpayers.
a) Tax advance payment for business owners and self-employed
|S.N.||Due date of tax instalment||Amount of tax payable|
|1.||Either on or before 15th of September||At least 30% of the advance tax liability|
|2.||Either on or before 15th of December||At least 60% of the advance tax liability|
|3.||Either on or before 15th of March||100% of the advance tax liability|
b) Tax advance payment for Companies
|S.N.||Due date of tax instalment||Amount of tax payable|
|1.||Either on or before 15th of June||At least 15% of the advance tax liability|
|2.||Either on or before 15th of September||At least 45% of the advance tax liability|
|3.||Either on or before 15th of December||At least 75% of the advance tax liability|
|4.||Either on or before 15th of March||100% of tax liability.|
For example, Mr Jay suggests that his estimated taxable income for the current year will be Rs.10,00,000. Based on the assumption that no income deductions were claimed, the taxes to be paid will be Rs.112,500.
As per the rule, the advance tax payment will be planned like this –
A taxpayer whose total tax liability is more than Rs.10000 after adjusting TDS in a fiscal year must pay advance tax. It applies to all categories of taxpayers including – freelancers, professionals, salaried and senior citizens.
Individuals whose tax liability in a fiscal year amounts to Rs.10000 or more have to pay advance tax. Regardless, senior citizens who are 60 years of age or older and do not own a business are exempt from advance tax.
Taxpayers who choose a presumptive tax regime under Section 44AD are required to pay the entire advance tax liability in one instalment on or before 15th March. Nonetheless, they can also pay their tax liabilities by the 31st of March.
Independent professionals like – architects, doctors, lawyers, consultants, etc. come under the purview of the presumptive tax regime under Section 44ADA. Under the said tax regime, professionals have to pay the entire advance tax liability in a single instalment either on or before the 15th of March. They also have the option to pay the whole amount by the 31st of March.
It must be noted that delaying advance taxes or paying less than the specified amount against the first due date attracts a penalty at the rate of 1% interest on the remaining tax liability each month. Such an interest is paid under Section 23 4B and Section 23 4C of the Income Tax Act, 1961.
The interest penalty will also apply if taxpayers fail to pay the due amount by the next deadline. In case, they fail to pay the third or last instalment they will be paying 1% S.I. on the default tax for each month until the entire sum is paid.
Taxpayers can compute their advance tax liability by following these simple steps –
Step 1 – Taxpayers need to ascertain their earnings for the given year, as advance tax is computed based on estimated income. They must factor in revenue from sources like – capital gains, interest income, rent, professional income, etc.
Step 2 – Proceed to compute the gross taxable earnings of a year by adding salary income to estimated revenues of the year. Regardless, it must be noted that advance tax is not paid on salary. Also, the sum of income from non-salaried sources and salary may influence the applicable tax slab and may increase tax liability.
Step 3 – Compute the payable tax amount as per the latest and applicable income tax slab.
Step 4 – Subtract the deducted TDS amount or the TDS that will be deducted according to the suitable tax slabs for different earnings.
Step 5 – At any time if the tax liability post TDS deduction exceeds Rs.10000, adhere to advance tax payment norms.
In case, taxpayers fail to estimate their expected income correctly; they will have to account for it accordingly. For instance, if the taxpayer had paid an advance tax amount that turned out to be lower than the actual tax due, they will have to pay the penalty along with any applicable interest.
On the other hand, in case they had paid more than their actual tax liability, they can input tax credit in their Income Tax Returns and claim a refund. Taxpayers can claim the rebate by submitting Form 30 within a year from the last financial assessment year. One can use an online calculator available on the I.T. Department’s website for accurate advance tax calculation.
Here’s how to carry out advance tax payment online –
Step 1 – Go to the I.T. Department’s online tax payment portal.
Step 2 – Select the applicable challan number. For example, individual taxpayers will choose challan no 280 for advance tax payment.
Step 3 – Set ‘Type of Payment’ as ‘(100) Advance Tax’.
Step 4 – Provide details like – mode of payment, address, assessment year, etc.
Step 5 – Click on ‘Proceed’.
Step 6 – Complete the transaction on being redirected to the slated online payment portal.
Step 7– Save the payment challan as it will come in handy for filing Income Tax Returns.
Those who are not comfortable with this online advance tax payment method may use the offline payment facility by submitting the challan at the I.T. Department authorised bank branches.
Nonetheless, irrespective of the method, individuals must ensure that they compute and settle their advance tax liabilities on time to avoid getting penalised.