Everything you need to know about Advance tax

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Meaning of Advance Tax Payment  : Advance tax is the payment made in advance to the government on the income earned during the financial year. The concept of advance tax works on “pay as you earn.” The tax should be paid in the same year in which the income is earned. Therefore, the taxpayer is required to make payment of advance tax on installment basis on due dates. 

The purpose of initiating the advance tax facility is to reduce the burden of the taxpayers. It helps the taxpayers from the lump-sum payment at the year-end. 

Who are liable to pay advance tax?

The applicability of advance tax arises if you are earning income through capital gain, house property, interest, business, profession, or lottery income. However, a salaried individual is already under the obligation to pay TDS on their salary every month based on your investment and expenditure declarations. Therefore, they are not liable to pay advance tax. 

Salaried person, professional, freelancer, or businessman: If the total tax liability of such taxpayers exceeds Rs. 10,000 in a financial year. Moreover, NRIs earning an income from India with a tax liability of more than Rs.10, 000 have to pay advance tax.

Taxpayers opted for presumptive option: The taxpayers opted for presumptive taxation under section 44AD (Businesses) or 44ADA (Professionals) are required to pay advance tax in one installment on or before 15th March. 

Who are exempted from paying advance tax?

Resident senior citizens having age more than 60 years or older and don’t earn any business income are not liable to pay advance tax.

The taxpayers who opt for presumptive schemes in Sections 44AD and 44ADA are exempted from paying advance tax if income stays within Rs.2 crore thresholds in one financial year. Further, in the year 2020-21, such scheme was extended to doctors, lawyers, and architects, provided their annual receipts totals to a maximum of Rs.50 Lakhs.

Applicability of Advance tax on capital gains

Capital gain is considered for advance tax calculation only when it is actually earned because it is not possible to estimate the capital gain at the beginning of the financial year. For example, if you have earned the capital gain on 1st October 2019, then such income was uncertain while calculating and making payment of the first and second installments of advance tax. Hence, now it shall be included at the time of calculation of the third and fourth installments only.

Further, when the whole tax is payable in further installments, then there is no obligation to pay interest on such late payment. 

How to calculate advance tax?

Advance tax is to be paid based on estimated income during the year. It is usually done based on previous income trends of the taxpayer. The assessee has to evaluate his future income and pay the taxes accordingly. This estimated income will be reduced by TDS, TCS, MAT /AMT credit, and any relief under tax-treaty. 

Here is the simple calculation to calculate the advance tax:

ParticularsAmount (In Rs.)Amount (In Rs.)
Income from business & Profession:  
Gross receipts*** 
Less: Expenses(***)***
   
Income from other sources ***
Gross total income ***
Less: Deductions under section 80C to 80U (***)
Total Income ***
   
Tax payable ***
Add: Education cess @ 4% ***
Total tax liability ***
Less: MAT Credit u/s 115JAA (***)
Less: Relief of tax u/s 90,90A, 91 (***)
Less: TDS (***)
Tax Payable in Advance (If it exceeds Rs. 10,000, then you will have to pay advance tax) ***

Due date of payments of Advance tax

StatusOn or before 15th JuneOn or before 15th SeptemberOn or before 15th DecemberOn or before 15th March
Individuals and corporate (Taxpayers other than those who opted for presumptive taxation scheme of section 44AD or section 44ADA)Upto 15% of advance taxUpto 45% of advance taxUpto 75% of advance taxUpto 100% of advance tax
Taxpayers who opted for presumptive taxation scheme of section 44AD or section 44ADANANANAUpto 100% of advance tax

Interest provisions on late payment of advance tax

As per Income tax act, 1961, in case if there is any delay on depositing the advance tax or have shortfall in paying, then he/she shall be liable to pay interest on the defaulted amount as per section 234B and 234C.

Section 234B of Income Tax Act, 1961

234B (non-payment or short payment of advance tax):  Interest @ 1% is payable under section 234B is levied in following two cases:

a) When the taxpayer has not paid the advance tax; or

b) If the taxpayer has paid advance tax less than 90% of the assessed tax*

* Assessed tax means ascertainment of tax under section 143(1) and where regular assessment is made, the tax on total income as determined under such regular assessment. Reduce such income by TDS, TCS, relief/deduction of tax claimed (sections 89/90/90A/91) and MAT credit claimed under section 115JAA/115JD.

Section 234C of Income Tax Act, 1961

234C (non-payment or short payment of installments of advance tax (i.e., deferment of advance tax):  Interest under section 234C is charged at 1% per month or part of a month in the following cases:

a) In case of taxpayers (other than those who opted for presumptive taxation scheme under section 44AD or section 44ADA):

Due date of paymentAmount of advance tax to be paid
On or before 15th JuneIf advance tax paid is less than 12% of advance tax payable
On or before 15th SeptemberIf advance tax paid is less than 36% of advance tax payable
On or before 15th DecemberIf advance tax paid is less than 75% of advance tax payable
On or before 15th MarchIf advance tax paid is less than 100% of advance tax payable

b) In case of taxpayers who opted for presumptive taxation scheme of Section 44AD or section 44ADA interest shall be levied if advance tax paid on or before 15th March is less than 100% of advance tax payable.

Computation of interest under section 234B:

PeriodRate of Interest (Simple Interest per
month )
Period of Interest Amount on which interest is calculated
If Advance Tax paid on or before 15th June is less than 15% of the returned income       @1%3 months15% of amount due on returned income less tax already deposited before 15th June
If Advance Tax paid on or before 15th September is less than 45% of the returned income        @1%3 months45% of amount due on returned income less tax already deposited before 15th September
If Advance Tax paid on or before 15th December is less than 75% of the returned income        @1%3 months75% of amount due on returned income less tax already deposited before 15th December
If Advance Tax paid on or before 15th March is less than 100% of the returned income     @1%3 months100% of amount due on returned income less tax already deposited before 15th March

Interest provisions on late refund of excess advance tax paid

If you have paid higher advance tax than the total tax liability, then you will receive a refund of the excess payment made. Furthermore, if the amount is more than 10% of your liability, you will receive 6% per annum interest by the Income Tax department.

How to pay advance tax?

Offline method: The Income-tax department has authorized various bank branches to accept the advance tax payment. Few of the authorized branches include SBI, HDFC, ICICI, Syndicate, PNB, Axis bank, etc. You can visit the bank, fill the challan 280, and make the payment by cash or cheque. Make sure to get a receipt for payment acknowledgment

Online method: You can also pay the advance tax online by visiting the official website of the Income-tax Department or National Securities Depository Limited (NSDL) Portal by submitting the challan ITNS 280.

Fill out the PAN, name, address, email id, etc. and select the code as “100” for advance tax. Click on proceed to make payment through the payment gateway. After making the payment, you will get a receipt. Save this copy for future reference.

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