What is the Advance Tax?
Advance Tax is a part of your taxes that is to be paid before the end of the financial year. It should be paid in the year in which the income is received. That is why it is also known as the pay-as-you-earn scheme.
Submit Query for Advance Income Tax Software
Who is Liable to Pay Advance Tax?
Any assessee whose tax liability is more than Rs 10,000 in a financial year is liable to pay advance tax. For eg: if your tax liability for FY 2024-25 has exceeded Rs 10,000 then you are liable to pay it.
Note: Senior citizens (an individual of 60 years or more) who do not have income from the business is exempted from paying advance tax. Such exemption is irrespective of the ceiling of Rs 10,000.
Who Should File Advance Tax?
Advance Tax is applicable only for those who have sources of income other than Salary. The salaried person is not required to pay advance tax as the tax deduction at source (TDS) will be done by his employer. But if he has earned income from heads other than Salary, such as interest income on fixed deposit, whose tax liability exceeds Rs 10,000 then he is required to pay advance tax.
What is the Logic behind Advance Tax?
Advance Tax helps the government to receive a regular flow of income throughout the year so that it doesn’t have to wait until the end of the year to incur any expenditure. This approach keeps the government going.
How to Calculate Advance Tax Liability?
Tax liability is calculated by estimating the current year’s income and then applying the tax rates applicable as per Income Tax Slabs.
Let’s Understand with the Help of An Example:
Suppose the total tax on the estimated income of the financial year 2024-25 is 20,000(which is clearly more than Rs. 10,000 so advance tax has to be paid).
The entire Rs 20,000 has to be paid as advance tax, but in instalments, as follows:
- 1st instalment by 15th June 2024 (15% of 20,000) = Rs 3,000
- 2nd instalment by 15th Sept 2024 (45% of 20,000) = Rs 6,000
- 3rd instalment by 15th Dec 2024 (75% of 20,000) = Rs 6,000
- 4th instalment by 15th March 2025 (100% of 20,000) = Rs 5,000
What are the Due Dates of Advance Tax Payment?
(For both Corporate & non-Corporate Assessee)
| Due Dates | Rates of Advance Tax |
|---|---|
| On or before 15th June | Up To 15% of the advance tax liability |
| On or before 15th September | Up To 45% of the advance tax liability |
| On or before 15th December | Up To 75% of the advance tax liability |
| On or before 15th March | 100% of the advance tax liability |
Earlier the percentage of Advance Tax to be paid was different for companies and other than companies, But now Budget 2016 has standardized the rates for both the assessee.
Advance Tax Interest:
Interest U/s 234C:
Where in any financial year an assessee, other than the assessee declaring income under presumptive taxation who is liable to pay advance tax has failed to pay such tax or the advance tax paid by such assessee on its current income on or before the 15th day of June is less than 15% of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of September is less than 45% of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December is less than 75% of the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of 1% per cent per month for a period of three months on the amount of the shortfall from 15% or 45% or 75%, as the case may be, of the tax due on the returned income.
If the advance tax paid by the assessee on the current income on or before the 15th day of March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of 1% per cent on the amount of the shortfall from the tax due on the returned income:
If the advance tax paid by the assessee on the current income, on or before the 15th day of June is not less than 12% or the 15th day of September is not less than, 36% of the tax due on the returned income, then, the assessee shall not be liable to pay any interest on the amount of the shortfall on those dates.
An assessee who declares profits and gains under section 44AD or section 44AD, as the case may be whose tax liability is more than Rs.10,000 and has failed to pay such tax or the advance tax paid by the assessee on its current income on or before the 15th day of March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of 1% per cent on the amount of the shortfall from the tax due on the returned income
Interest Under Section 234B
What happens if you fail to pay advance tax on due dates?
If you miss the deadlines for the advance tax payment
- You did not pay any advance tax even if your tax liability for the financial year is more than Rs 10,000
- You have paid the advance tax but the paid amount is less than 90% of the assessed tax.
In any one of the cases, interest under Section 234B shall be applicable.
Interest is calculated @ 1% per month from 1st April on Assessed Tax less Advance Tax already deposited.
Points To Remember While Paying Advance Tax Installment
While paying advance tax, it is not required that the person must submit an estimate or statement of income to the liabilities. Sehgal said, “While calculating tax liability it is allowed to consider deductions under Chapter VI-A for the investments to be made by the taxpayer during the year before calculating advance tax liability”. Deductions under Sections 80C, 80D and so on are included in Chapter VI-A deductions.
After the payment, if there is a change in income then you can update the revenue of advance tax in the next instalments as per the new tax liability estimate.
One has to pay interest on due taxes if one fails to pay taxes on time. Nangia said “Interest under section 234B of the Act shall have to be paid if the total advance tax paid is less than 90% of the assessed tax or if the entire advance tax has not been paid. Interest at the rate of 1% per month from the beginning of the assessment year until the payment thereof shall have to be paid on account of such default”.
If the liability of the income tax on any assessee exceeds Rs 10,000 in a fiscal year, he would be responsible for filing the same tax in Installment in the year itself as advance tax. The advance tax would be furnished in 4 Installments 15% on or prior to June 15, 45% on or prior to September 15, 75% on or prior to Dec 15, and 100% on or prior to March 15 of the former year.
Under sections 44AD and 44ADA, an assessee who has chosen the scheme of
calculating the business income on the grounds of presumption would be responsible for filing only the last Installment for the advance tax. Senior citizens, whose age is 60 years or more but have no income through business or profession would be exempted from furnishing the advance tax.
The taxpayer must estimate the income of the fiscal year and the income tax on it. From that income tax, TDS, and TCS credit would need to be deducted and the Installment of the advance tax must be furnished.
Three Easy Methods to Pay Advance Tax
Offline Mode:
Individuals may pay advance tax using tax payment challans at bank branches authorised by the Income Tax Department. Such authorised banks for the income tax payment are Reserve Bank of India, State Bank of India, HDFC Bank, Indian Overseas Bank, ICICI Bank, Indian Bank, Allahabad Bank, Syndicate Bank, Axis Bank, Punjab National Bank, Punjab & Sindh Bank and more.
Online Mode:
Advance Tax can also be paid online through the official website of the Income Tax department.
Using Income Tax Software:
People often get confused about filing returns, as there are many taxes imposed by the Indian Government such as Advance Tax/Income Tax, Service Tax, TDS, Wealth Tax etc. Due to the lack of information people could not complete their paperwork and other formalities. In order to make e-filing easier, SAG Infotech has developed a Genius Tax Return Software that enables getting e-taxation work done in the easiest possible and the most efficient way. As per the name, the software is actually a Genius as this software enables us to e-file several taxes at once. GENIUS makes Database Management of clients very easy and efficient, by maintaining their address and telephone directory, partner’s details and other signatory details. The Genius software is also developed with several other facilities such as backup, Restore and Password Settings. Get your hands on the free trial version of Genius Software for e-filing of different taxes.
Mentioned Below Some FAQs Related to Advance Tax:
Q.1 – When does an individual become liable to pay advance tax?
An individual becomes liable to pay advance tax when his annual tax liability or tax liability for a year after subtracting TDS comes out to be more than INR 10,000. In short, when the total tax liability for a year minus TDS exceeds INR 10,000, a person becomes accountable for paying advance tax.
Q.2 – How can the payment of advance tax be made?
Payment of advance tax is made like other tax payments i.e. through Challan.
Q.3 – Does an NRI hold any responsibility to pay advance tax? If yes, when?
Depending upon the situations of various companies there are different due dates of filing Form MGT 7:
Yes an NRI also holds a responsibility to pay advance tax. When the income of an NRI accruing in India exceeds the limit of INR 10,000, he becomes liable to pay advance tax.
Q.4 – Is there any penalty which is imposed when an advance tax is not paid?
Yes, interest under section 234B and 234C of the Income-tax Act, 1961, is imposed on non-payment of advance tax.
Q.5 – Are senior citizen getting pension & earning interest income liable to pay advance tax?
Resident senior citizens getting pension & earning interest income are not liable to pay advance tax. They become liable to pay advance tax only when they are having income from business or profession.
Q.6 – What happens when a person fails to pay the 4th instalment of advance tax on or before the due date of 15th March?
A person, who failed to pay the 4th instalment of advance tax on or before the due date of 15th March, can still that instalment of advance tax on or before the 31 March of the same year. Such payment will be considered as an advance tax only.
Q.7 – Can the deduction u/s 80C be claimed while estimating income to ascertain my advance tax liability?
Yes, deductions u/s 80C can be claimed while estimating annual income to compute an advance tax liability.
Q.8 – Need to Find If Any Details are available on the New Portal for Advance Tax Payment?
In the income tax, the decision of the forthcoming or the current year would be taken on the profit and loss of the former years. Post log in to the new portal the information about the taxable income and the tax liability would be available for the two former fiscal years on the dashboard. Moreover, the information on the advance tax, TDS/TCS, and the self-assessment tax furnished for the two former fiscal years would be available. The assessee could acknowledge that for the computation of the advance tax liability for the present year.
Q.9 – What Comes When No Advance Tax Gets Filed?
If the advance tax would not get filed then the interest would be required to be paid at 1% per month u/s 234B and 234C and one might suffer from the investigation from the council. Moreover, the penalty might be levied on the assessee who would be needed to file the higher amount of advance tax. Because of digitalization, the tax department would obtain much more data, upon which the department furnishes the advance tax notices demanding the tax payment.
