Advance Tax under Income Tax, 1961

What is Advance Tax?

Tax which paid as you earn is called as advance tax. It is paid in the year in which you earn the income. Particularly a Financial year. For e.g. if you are earning income in the year 2022-23 then it would be a year in which you have to paid advance tax. 2022-23 would be that financial year.

Who is liable to pay Advance Tax?

Any person who’s estimated tax liability for the financial year exceeds Rs.10,000/- is required to pay Advance Tax.

When it is to be paid?

It is to be paid in 4 installments in the financial year. Starting 1st installment on 15th June, 2nd on 15th September, 3rd on 15th December and 4th on 15th March of the year.

How much is to be paid ?

Atleast 90% of the assessed tax (Assessed tax means Total tax less TDS) is to be paid to avoid interest u/s 234B.

How it is to be paid?

It is to be paid as follows:-

• 15% of the total estimated tax on 1st installment

• 45% of the total estimated tax on 2nd installment i.e. 45% less 15% paid on 1st installment

• 75% of the total estimated tax on 3rd installment i.e. 75% less 45% paid on 1st and 2nd installment

• 100% of the total estimated tax on 4th installment i.e. 100% less 75% paid on 1st, 2nd & 3rd installment

What are the consequences if it is not paid or short paid?

• Treated as default u/s 234B and u/s 234C

• Simple interest @1% from 1st April of the Assessment year to the date of filing of the Return of Income u/s 234B

• Simple interest @1% for 3 months in respect of each installment payable on 15th June, 15th Sep and 15th December and @1% on last installment i.e. on 15th March

• Unnecessarily we have to pay interest on tax.

What are the benefits of paying Advance Tax?

• Reduce the burden of paying tax in one go at the time of filing of Return of Income.

• Save in interest liability which crystallize in case if advance tax not paid or short paid

Few Important points to note:-

• Challan No.280 is to be used to pay the Advance Tax.

• Select correct Assessment year corresponding to the financial year for e.g. if FY is 2022-23 then corresponding Assessment year would be 2023-24

The date is near for 1st installment which is due on 15th June for the FY 2022-23. Therefore pay your Advance Tax if you are liable to pay and just be relaxed.

Hope this write-up would help you in some way.

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