Advance Tax Payment

Introduction

Advance Tax Payment is a system that allows taxpayers to pay a portion of their tax liability before the end of the financial year. Often referred to as a tax EMI, this method ensures that the tax burden is spread out over time, preventing a large lump sum payment at the end of the year. To maximize the benefits of this system, it’s crucial to understand all its aspects, including advance tax payment dates, the amount payable, eligibility criteria, and the application process for the financial year.

What is Advance Tax Payment?

Advance Tax refers to the concept of paying your income tax in advance rather than at the end of the fiscal year. This “pay-as-you-earn” system requires taxpayers to pay their tax liability in installments throughout the year if their total tax due exceeds Rs.10,000 in a given fiscal year.

This system is beneficial to the government as it ensures a steady flow of income, aiding in better financial planning. Additionally, if a taxpayer’s income estimate changes during the year, the advance tax amount can be adjusted accordingly.

Generally, the payment schedule is as follows:

15% of the tax liability by June 15th.
45% by September 15th.
75% by December 15th.
100% by March 15th.

It’s important to note that the advance tax payable varies across different categories of taxpayers. For instance, Non-Resident Indians (NRIs) earning more than Rs.10,000 in India are also required to pay advance tax.

You may also want to know Section 80CCD (1) and 80CCD (2)

Advance Tax Payment Due Dates and Amount

The advance tax payment dates and the amount payable differ based on the category of the taxpayer.

Here’s a breakdown:

Advance Tax Payment Date for Business Owners and Self-employee

Installment	Due Date of Tax Instalment	Amount of Tax Payable
1st Instalment	Either on or before the 15th of September	At least 30% of the advance tax liability
2nd Instalment	Either on or before the 15th of December	At least 60% of the advance tax liability
3rd Instalment	Either on or before the 15th of March	100% of the advance tax liability

Advance Tax Payment Date for Companies

Installment	Due Date of Tax Instalment	Amount of Tax Payable
1st Instalment	Either on or before the 15th of June	At least 15% of the advance tax liability
2nd Instalment	Either on or before the 15th of September	At least 45% of the advance tax liability
3rd Instalment	Either on or before the 15th of December	At least 75% of the advance tax liability
4th Instalment	Either on or before the 15th of March	100% of tax liability.

Example:
Suppose Mr. Jay estimates his taxable income for the current year to be Rs.10,00,000. Without considering any deductions, his tax liability would be Rs.112,500. His advance tax payments would be structured as follows:

Advance tax payment of Rs.16,875 (15%) by June 15th.
Advance tax payment of Rs.33,750 (45%) by September 15th.
Advance tax payment of Rs.33,750 (75%) by December 15th.
Advance tax payment of Rs.28,125 (100%) by March 15th.

Who Should Pay Advance Tax?

Any taxpayer whose total tax liability exceeds Rs.10,000 after adjusting for TDS in a fiscal year must pay advance tax. This applies to all categories of taxpayers, including freelancers, professionals, salaried individuals, and senior citizens.

Advance tax is applicable to the following taxpayers:

1. Salaried Individuals:

Although employers deduct TDS from salary, if an individual has income from other sources like rent, business, or investments, and the total tax liability exceeds Rs.10,000, advance tax needs to be paid.

2. Freelancers & Self-Employed Individuals:

Since no TDS is deducted from income, freelancers and self-employed individuals must calculate their income and pay advance tax if their liability crosses Rs.10,000.

3. Businesses:

Businesses, including corporations, must pay advance tax based on their estimated annual income. Both small and large businesses fall under this category.

4. Senior Citizens:

Senior citizens (aged 60 years and above) who do not have any income from business or profession are exempted from paying advance tax.

Penalties for Late Payment of Advance Tax

Delays in advance tax payments or paying less than the specified amount can attract a penalty of 1% interest on the remaining tax liability each month. This penalty is levied under Sections 234B and 234C of the Income Tax Act, 1961. The penalty applies if taxpayers miss the first due date and continue to default on subsequent payments.

Failure to pay advance tax on time can attract interest under sections 234B and 234C of the Income Tax Act.

1. Section 234B:

If a taxpayer fails to pay at least 90% of their total tax liability by the end of the financial year, interest is levied at 1% per month on the unpaid tax.

2. Section 234C:

If the advance tax installments are not paid on or before the specified due dates (15th June, 15th September, 15th December, and 15th March), interest is levied at 1% per month on the shortfall amount. These penalties aim to encourage taxpayers to make timely tax payments, ensuring compliance and steady tax collection.

How to Calculate Advance Tax?

Taxpayers can calculate their advance tax liability using the following steps:

1. Estimate Your Income:

Calculate your estimated income for the fiscal year, including revenue from sources like capital gains, interest, rent, and professional income.

2. Compute Gross Taxable Income:

Add your salary income to the estimated revenue for the year to determine the gross taxable income. Note that advance tax is not paid on salary alone.

3. Calculate Tax Liability:

Determine the tax payable based on the latest income tax slab applicable to your income.

4. Subtract TDS:

Deduct the TDS amount from your tax liability. If your tax liability after TDS exceeds Rs.10,000, you need to pay advance tax.

5. Account for Changes:

If your income estimate changes during the year, adjust your advance tax payments accordingly to avoid penalties.

You may also want to know Section 44ADA of Income Tax Act

How to Pay Advance Tax Online?

Here’s a step-by-step guide to paying advance tax online:

1. Visit the e-Filing Portal: Go to the Income Tax Department’s e-filing portal.

2. Select ‘e-Pay Tax’: Under ‘Quick Links’, click on ‘e-Pay Tax‘.

3. Enter PAN and Mobile Number: Fill in your PAN and mobile number, then click ‘Continue’.

4. Enter OTP: Input the OTP received and click ‘Proceed’.

5. Choose Income Tax Option: Select ‘Income Tax’ and click ‘Continue’.

6. Select Assessment Year and Payment Type: Choose the appropriate assessment year and select ‘Advance Tax (100)’ as the payment type.

7. Enter Tax Details: Fill in the tax details and choose your preferred payment method and bank.

8. Preview and Pay: Preview the challan and click ‘Pay Now’.

9. Receipt: After payment, an acknowledgment with the BSR code and challan serial number will appear. Keep a copy of this receipt for future reference.

For those who prefer not to pay online, advance tax can also be paid offline by submitting the challan at authorized bank branches of the Income Tax Department.

Exemptions from Advance Tax

Senior Citizens: Individuals aged 60 years or older who do not own a business are exempt from paying advance tax.
TDS Coverage: If TDS deductions cover the total tax liability for the year, advance tax is not required.
Salaried Individuals: Those falling under the TDS net are exempt from advance tax on their salary income. However, non-salary income like interest, rent, or capital gains is subject to advance tax.

Advance Tax Refund

If the Income Tax Department finds that you have paid more tax than required, they will refund the excess amount at the end of the year. Taxpayers can claim a refund by submitting Form 30 within one year from the end of the assessment year.

Benefits of Advance Tax

Reduces Financial Burden: Paying taxes in installments reduces the stress of making a large payment at the end of the year.
Smooth Cash Flow: Advance tax ensures a steady cash flow for the government.
Better Financial Management: It helps businesses manage their finances effectively.
Prevents Penalties: By paying taxes on time, taxpayers avoid penalties and interest charges.

Conclusion

Understanding and adhering to the advance tax payment system can save taxpayers from hefty penalties and interest charges. By spreading out the tax liability throughout the year, it also eases the financial burden on individuals and businesses. Whether you’re a salaried employee, freelancer, or business owner, paying advance tax on time is crucial to ensure compliance with tax regulations.

Frequently Asked Questions

What happens if I miss the advance tax payment deadline?

If you miss the deadline, a penalty of 1% interest on the outstanding amount will be charged for each month of delay under Sections 234B and 234C of the Income Tax Act.

Are senior citizens required to pay advance tax?

Senior citizens aged 60 or above who do not own a business are exempt from paying advance tax.

Can I pay advance tax offline?

Yes, you can pay advance tax offline by submitting the challan at authorized bank branches of the Income Tax Department.

How can I calculate my advance tax liability?

You can calculate your advance tax by estimating your income, computing gross taxable income, determining the tax liability as per the applicable tax slab, subtracting TDS, and paying the balance if it exceeds Rs.10,000.

Can I get a refund if I overpay advance tax?

Yes, if you have overpaid, the Income Tax Department will refund the excess amount. You can claim a refund by submitting Form 30 within one year of the end of the assessment year.

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