Tag: Advance Tax

Taxation is a complex subject, and understanding its nuances is crucial for individuals and businesses. In India, the Income Tax Act of 1961 governs the taxation system.

Let us discuss the key aspects of Indian taxation such as advance tax, TDS (Tax Deducted at Source), TCS (Tax Collected at Source), and the provisions for filing income tax returns. If you wish to become a tax professional, you can enrol in a solid financial accounting course.

Advance Tax

Advance tax is a mechanism where individuals and businesses pay income tax in advance to avoid a penalty for delayed payment. It applies to those whose estimated tax liability exceeds Rs. 10,000 in a financial year.

Key Points

• Estimated Tax Liability: Individuals and businesses must estimate their annual income tax liability.
• Instalment Payments: The estimated tax liability is divided into four instalments, typically due on June 15th, September 15th, December 15th, and March 15th.
• Interest and Penalty: Failure to pay advance tax on time can result in interest and penalties.

TDS (Tax Deducted at Source)

TDS is a mechanism where certain specified payments made by one person to another are subject to tax deduction at the source. The deductor (the payer) deducts tax and remits it to the government.

Common TDS Deductions

1. Salary income
2. Interest income
3. Rent payments
4. Professional fees
5. Commission payments

TCS (Tax Collected at Source)

TCS is similar to TDS, but it applies to certain specific transactions, such as the sale of goods or services. The seller (the collector) collects tax from the buyer and remits it to the government.

Common TCS Transactions

1. Sale of goods exceeding a certain threshold
2. Sale of foreign exchange
3. Online sales by e-commerce operators

Income Tax Return Provisions

Now that we have gotten TDS and TCS Explained, let us discuss income tax returns. Filing an Income Tax Return requires individuals and businesses to declare their income and pay taxes. The Income Tax Department has simplified the return filing process through various online portals.

Key Points in Income Tax Return Provisions

• Due Date: The due date for filing income tax returns is typically July 31st for individuals and March 31st for businesses.
• Types of Returns: Income tax returns are available based on the taxpayer’s income sources and tax liability.
• Verification: Returns can be verified electronically or by submitting a physical copy.
• Tax Refunds: A tax refund is processed if excess tax has been paid.

Important Considerations for Filing Returns

• Accurate Information: Ensure all information provided in the return is accurate and complete.
• Document Retention: Keep all relevant documents for future reference and audits.
• Timely Filing: File your return on time to avoid penalties.

Tax Planning Strategies

Effective tax planning can significantly reduce your overall tax liability. Here are some strategies to consider:

1. Investments: Investing in tax-saving instruments like PPF, ELSS, and NPS can help reduce taxable income.
2. Home Loans: Interest paid on home loans can be claimed as a deduction.
3. Health Insurance: Premiums paid for health insurance can be claimed as a deduction.

Tax Audits

A tax audit is a detailed examination of your tax returns by the Income Tax Department. While it can be a stressful experience, proper preparation can help you navigate the process smoothly:

• Maintain Accurate Records: Keep all relevant documents, such as receipts, invoices, and bank statements.
• Be Transparent: Be honest and upfront with the tax authorities.

International Taxation

Understanding international tax laws is crucial if you have foreign income or assets. Key concepts to consider include:

• Double Taxation occurs when income is taxed in both the country of origin and residence.
• Tax Treaties: These agreements between countries can help reduce or eliminate double taxation.
• Foreign Tax Credit: You may claim a credit for taxes paid to foreign governments.

Tax Credits and Deductions

Tax credits and deductions can significantly reduce your tax liability. Some common ones include:

• Section 80C: Investments in PPF, ELSS, and other specified instruments.
• Section 80D: Health insurance premiums.
• Section 24: Interest on home loans.
• Section 80G: Donations to charitable institutions.

How to File Tax Returns 2024

Filing an Income Tax Return (ITR) is a yearly obligation for individuals earning taxable income. The process involves declaring your income, deductions, and tax liabilities. Here’s a simplified guide to filing your ITR for the Assessment Year 2024-25:

Step-by-Step Guide

Documents Required:

• PAN Card
• Aadhaar Card
• Form 16 (Salary Slip)
• Interest Certificates (Bank, FD, etc.)
• Property Documents
• Investment Proofs (PPF, Mutual Funds, etc.)
• Other Income Documents

1. Choose the Right ITR Form:

• ITR-1 (Sahaj): For individuals with incomes up to Rs. 50 lakh from salary, pension, and other sources.
• ITR-2: For individuals and Hindu Undivided Families (HUFs) that do not have income from businesses or professions.
• ITR-3: This is for individuals and HUFs who have income from business and profession.
• ITR-4 (Sugam): This form is for individuals and HUFs with income from business and profession and a turnover of up to Rs. 5 crore.
• Other Forms: For specific categories like foreign income, capital gains, etc.
  

2. Register on the Income Tax e-Filing Portal:

• Create an account on the official Income Tax e-filing portal.
• Verify your account using Aadhaar OTP or e-verification code.

3. File Your Return:

• Log in to your account and select the appropriate ITR form.
• Fill in the required details accurately, including personal information, income details, deductions, and tax paid.
• Upload necessary documents.
• E-verify your return using Aadhaar OTP or e-verification code.

Wrapping Up

Understanding the concepts of advance tax, TDS, TCS, and income tax return filing is essential for individuals and businesses in India. By adhering to the rules and regulations, taxpayers can ensure compliance and minimise tax liabilities. It’s advisable to stay updated with the latest tax laws to optimise tax planning and avoid potential penalties.

If you wish to become a taxation expert, enrol in the Postgraduate Financial Accounting and Management Program by Imarticus.

Frequently Asked Questions

What is the difference between TDS and TCS? 

TDS and TCS Explained: TDS (Tax Deducted at Source) is deducted by the payer (e.g., employer, bank) on certain payments made to the payee. The seller collects TCS (Tax Collected at Source) on certain sales transactions.

Who is liable to pay advance tax?

Individuals and businesses with an estimated annual tax liability exceeding Rs. 10,000 are required to pay advance tax in instalments throughout the financial year.

What happens if I fail to pay the advance tax on time?

Late payment of advance tax can result in interest charges under Section 234B of the Income Tax Act. Additionally, if the total tax paid (including TDS, TCS, and Advance Tax) is less than 90% of the total tax liability, a penalty under Section 234A may apply.

How to File Tax Returns 2024?

You can file your income tax return online through the Income Tax Department’s e-filing portal. You’ll need to create an account and follow the step-by-step instructions to upload the necessary documents and submit your return.

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. 

Learn more about the advance tax provisions by enrolling in Imarticus’ financial accounting course 

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: 

• 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. 

• 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. 

Taxes can be difficult to understand. But if you find it interesting, why not use it to your advantage? Check out the Postgraduate Financial Accounting and Management Programme by Imarticus. Taught by industry experts, the course has been curated to help you become a financial expert. Accelerate your career with assistance from industry leaders. 

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.