Last updated on October 8th, 2024 at 07:10 am
Tax payment is often considered a yearly ritual during filing Income Tax Returns (ITR). On the contrary, it is a continuous process. Advance tax is just one aspect of it.
Advance tax is payable by individuals on income sources beyond their salary. These sources include but are not limited to fixed deposits, rent, capital gains from shares, lottery wins, profits from business or profession, and income from other sources. It is a financial obligation that certain businesses or individuals have towards the Indian government.
A portion of the annual tax liability is paid in advance - like an EMI - instead of making a lump sum payment at the end of the financial year. Taxpayers must pay on the due dates mentioned by the Income Tax Department. Late payment of advance tax can attract interest under Section 234B and 234C of the Income Tax Act, 1961. Let’s understand what advance tax is, who should pay it, and how to pay the tax amount.
What is advance tax?
Advance tax is not just a financial obligation, it's a proactive approach to paying taxes. Also known as the ‘pay as you earn tax’, it empowers you to manage your tax liabilities by paying in instalments throughout the year, in the same year the income is generated.
Taxpayers, with income exceeding Rs. 10,000 in a financial year (after subtracting TDS) have to pay advance tax amounts in instalments on specified dates by the Income Tax Department.
Advantages of paying advance tax
If you are wondering, ‘How is paying this tax amount beneficial’, let me break it down for you. Here are a few advantages of paying advance tax:
- Paying the tax amount will reduce taxpayer’s stress. You will not have to worry about money shortages or tax payments at the last moment.
- It is a great way to save taxpayers from defaulting on their tax payments.
- Businesses can manage their finances better and have a clearer picture of what they have earned in revenue.
Who is liable to pay advance tax?
The people who are liable to pay advance tax are:
- Taxpayers: Individuals owing more than Rs. 10,000 in taxes, after deduction of TDS, in a financial year need to pay advance tax. This includes all categories of taxpayers including salaried professionals, freelancers, and senior citizens.
- Senior citizens: People over 60 years of age who don’t own an enterprise are not liable to pay the advance tax.
- Presumptive income of businesses: People who opt for the presumptive tax rule under Section 44AD, which is a simplified taxation scheme for small businesses, are liable to pay the entire advance tax on or before 15th March
- Independent professionals: Professionals like architects, lawyers, doctors, etc., who choose the presumptive taxation scheme under advance tax Section 44ADA fall under this category. They must pay the total advance tax in a single instalment on or before 15th March. They also have the option to pay it on or before 31st March.
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Advance tax payment dates
Advance tax payment dates for salaried individuals and companies
| Due date for tax payment | Amount of tax payable |
| On or before 15th June | 15% |
| On or before 15th September | 45% |
| On or before 15th December | 75% |
| On or before 15th March | 100% |
Advance tax payment dates for business owners and self-employed:
| Due date | Amount of tax payable |
| On or before 15th September | 30% |
| On or before 15th December | 60% |
| On or before 15th March | 100% |
Forms needed in advance tax payment
Taxpayers have to fill out the Challan No. ITNS 280 on every due date. Here is a list of details or documents needed for Challan No. ITNS 280:
- PAN card details: You will have to carefully input your PAN details. This is to make sure that your money is not being deposited in someone else’s name.
- Assessment year: Choose the correct assessment year for which you want to pay the tax since the amount will be going out in advance for the upcoming financial year.
- Select the kind of payment: Taxpayers need to choose the type of payment in the challan. If you are paying the tax for the same financial year depending on the estimated income - it’s advance tax. Whereas, if it is paid post the end of the financial year - it’s a self-assessment tax.
A CIN or Challan Identification Number will be issued upon completion of the payment. It would help to note this number since you'll need it when filling out ITR.
How to pay advance tax online?
Here is a step-by-step explanation of how you can pay advance tax online:
Step 1: Go to the e-filling portal of the IT Department of India.
Step 2: From ‘Quick Links’ on the left side of the page, select the ‘e-pay Tax’ option.
Step 3: Provide your PAN details and mobile number. Click on ‘Continue’.
Step 4: You will receive an OTP to confirm your mobile number. Fill it out and click on ‘Proceed’.
Step 5: Select the first tab with the ‘Income Tax’ option, followed by ‘Continue’.
Step 6: Choose the ‘Assessment Year’.
Step 7: Select the ‘Type of Payment’ as ‘Advance Tax (100)’. Press ‘Continue’.
Step 8: Fill in all the details about the tax amount.
Step 9: Select the relevant mode of payment, bank, and ‘Continue’.
Step 10: Get a preview of your challan and press ‘Pay Now.’
Once you have made the payment, you will receive an acknowledgement on your screen. Note down the BSR code and challan number (from the challan’s right side) because you will need that when filing for tax returns.
How is advance tax calculated?
Indian citizens pay taxes applicable as the income tax slabs. To find out how much advance tax you need to pay, you must calculate your total income and determine the tax liability according to the tax slab.
Follow the given steps to calculate advance tax:
Step 1: Calculate the gross total income - add incomes from salaries, properties, fixed deposits, businesses and other sources.
Step 2: From this amount, subtract the applicable Chapter VIA deductions.
Step 3: If applicable, calculate the rebate under Section 87A and reduce the amount.
Step 4: If there are any surcharges, add them. Also, add the education and health cess.
Step 5: This is your total income.
Step 6: Calculate the tax payable on the net income based on the applicable tax slab.
Step 7: Deduct TDS and you will be able to get your total income tax liability.
This tax amount is divided into instalments called advance tax. You pay according to the percentage and dates mentioned above.
Interest on late payment
Let’s face it - it is not always possible to keep up with all tax payments and their due dates. Remembering all the advance tax provisions is a hassle, and people are late in making these payments. In case you are late on your advance tax payments, here is what will happen:
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Interest paid under section 234B
According to advance tax Section 234B, you need to pay at least 90% of your total taxes with advance tax or TDS by 31st March. If you fail to pay the amount, you will incur interest charges at a rate of 1% on the unpaid amount.
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Interest paid under Section 234C
Under Section 234C, you will need to pay the following charges on late payments:
| Instance | Interest rate | Duration of interest | Basis for interest calculation |
| The advance tax amount paid by 15th June is less than 15% | 1% each month | 3 months | 15% of the total amount - tax paid before 15th June |
| The advance tax amount paid by 15th September is less than 45% | 1% each month | 3 months | 45% of the total amount - tax paid before 15th September |
| The advance tax amount paid by 15th December is less than 75% | 1% each month | 3 months | 75% of the total amount - tax paid before 15th December |
| The advance tax amount paid by 15th March is less than 100% | 1% each month | 3 months | 100% of the total amount - tax paid before 15th March |
Summing up
Understanding and complying with the advance tax provisions is important to avoid any last-minute monetary burdens or penalties. Paying advance tax has removed the constraints of making lump sum payments at the end of the financial year.
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Frequently Asked Questions
Do NRIs have to pay advance tax?
If the income of an NRI in India exceeds the basic exemption limit, they need to pay advance tax. This tax is liable on the income made in the country.
What will happen if the amount of advance tax paid exceeds the tax liability?
If someone has paid more than the total tax liability, no need to worry. You will be eligible for a tax refund. You can claim this refund using Form 30. You can claim a deduction as per Section 80C when calculating your advance tax due.
Can I pay the advance tax amount offline?
Yes, you can make the payment by visiting your nearest bank branch. You will have to fill out a physical copy of Challan 280 and make the payment.
What is self-assessment tax?
Self-assessment tax is the amount taxpayers pay on income after removing advance tax and TDS. People who file income tax returns are liable to pay this tax amount beforehand. There are no deadlines for the payment of this tax. You can pay the self-assessment tax from the e-filling portal itself.
