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What is Advance tax?

In simple words, advance tax means payment of taxes for a Financial year during the duration of Financial year instead of paying it “at the time of Income Tax Return Filing”. In other words, ‘pay as you earn’.

When is Advance Tax Payable?

Advance tax is payable during a financial year where the amount of tax payable is INR 10,000 or more (as per section 208 of Income Tax Act, 1961).

Who is Liable to pay Advance tax?

Provisions of the advance tax shall not apply to an individual resident in India if the following conditions are satisfied (section 207) –

1. The resident individual does not have any income chargeable under the head ‘Profits and Gains from business or profession ‘; and

2. The resident individual is of the age of 60 years or more at any time during the previous year.

It must be noted that advance tax is applicable to all the taxpayer, however, if the resident individual fulfills the above two mentioned conditions, then, he is not required to make an advance tax payment.

For example:

Mr. Ram aged 65 years is having total rental income from 2 house properties of Rs.9,50,000/- annually. Here the 2 criteria mentioned that is – Income is not from the head Profits and gains from business or profession and he is of Age above 60 years, hence Mr.Ram is not liable to pay advance tax even though his tax liability is above Rs.10,000/-.

How is Advance tax computed?

Advance tax is calculated by taking the estimated income from all sources (salary + house property+ profits from business or profession+ capital gains+ other sources) as reduced by the investments under chapter VI A deductions (80c,80d,80g for old scheme) as reduced by Rebate (if any) and any TDS which is available (as per Income tax portal Form 26 AS) .

Basically, in simple words, calculation of Income tax as it is done at the time of ITR filing as reduced by any TDS which is deducted, whatever balance is payable needs to be paid within the Financial year if it exceeds Rs.10,000/-.

What are the Due dates for Advance tax payments?

Advance tax is to be paid in different instalments. The due dates for payment of different instalments of advance tax are as follows:

Status By 15th June By 15th Sept By 15th Dec By 15th March
All assessee (other than the eligible assessee as referred to in Section 44AD or section 44ADA) Minimum 15% of advance tax Minimum 45% of advance tax Minimum 75% of advance tax Minimum 100% of advance tax
Taxpayers who opted for presumptive taxation scheme of section 44AD or section 44ADA Nil Nil Nil Minimum 100% of advance tax

From the above table we can understand that the whole of tax liability needs to be paid by way of Advance tax by 15th March, however you can pay Tax under the head Advance tax till 31st of March of the respective Financial year. Delay of paying Advance tax beyond 15th March will incur some interest under section 234B and section 234C which will be charged at the time of return filing.

Important thing to note here is You can pay tax under the head Advance tax till 31st of March, if you pay in April or subsequently the minor head “Self-Assessment tax” needs to be selected.

How to Pay Advance Tax?

Advance tax can be paid in the same manner in which you pay Income tax that is via net banking or over the counter (for individuals) by posting respective details in the challan.

FAQ :

1) As I was unaware about advance tax payment and calculation can I pay entire advance tax in the Month of March?

Yes, if you have skipped to pay the advance tax as per applicable percentage in the respective quarters , you can make advance tax payment of entire tax by the 15th of March (due date for 4th instalment ) and latest by 31st of March , Interest will be levied under Section 234b and section 234c which will be calculated at the time of return filing.

2) I am unable to have an estimate of my total income for the current financial year, can I pay advance tax as a lump sum amount based on my last year’s tax amount?

Sometimes it becomes difficult for taxpayer to calculate the tax liability for the entire year at the start of the year and they pay in lump some amounts for the respective instalments. You can absolutely pay the amounts in lump some in the respective instalments, however if the Advance tax paid are less than the minimum tax to be paid by the instalment date then interest under 234B and 234C will be levied for the differential amount.

3) I had estimated the Tax liability for the year as Rs.1 lakh and paid the first instalment accordingly (Rs.15,000/-), however my employer deducted my TDS of Rs.30,000/- in the month of July, how should I pay the further Advance tax instalment?

In the given scenario ,the further advance tax instalments needs to be calculated after deducting the TDS amount from the total tax payable (1,00,000-30,000= 70,000 ) is the total advance tax payable by you now , the second instalment total of 45% of 70,000 =31,500 needs to be paid minus 15,000 paid in first instalment =Rs.16,500/- needs to be paid by 15th Sept , 75% of 70000=52,500/- will be total for third instalment minus 31,500 paid previously =21,000 needs to be paid by 15th December and balance 17,500/- needs to be paid by 15th march .

4) Can I pay Advance tax by myself or need any expert advice for the same?

If you are well verse with the above calculations and are able to derive at the figures required you can pay advance tax by yourself from the Income tax portal. If you decide to do Lump sum payments based on previous year tax figures you can get it done by yourself, however you can consult your Tax consultant or CA for Advance tax calculation if you need assistance for the same.

This article has tried to simplify Advance tax for regular taxpayers for any queries Author can be reached at ashwinisnco@gmail.com.

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