Think of this tax as an EMI to the tax department, which you pay before the end of the financial year
- Advance tax is the income tax payable if your tax liability is more than Rs 10,000 in a financial year
- Any amount paid up to March 31 will also be accepted as advance tax for that financial year
- Individuals may pay advance tax using tax payment challans at bank branches authorised by the Income Tax (I-T) Department
If you have been tracking the news, every now and then there is statistics around the advance tax collection that gets mentioned. The reason for this figure to be indicative of the final tax collection is which in turn tells about the direct tax collection in the said financial year. The indicators are also good for banks and finance companies as the number helps in predicting liquidity requirements, stock analysts monitor it to forecast quarterly results from companies, and economists scan it to map the economy.
What is it?
As the name suggests, advance tax refers to paying a part of your taxes before the end of the financial year. Also called ‘pay-as-you-earn’ scheme, advance tax is the income tax payable if your tax liability is more than Rs 10,000 in a financial year. It should be paid in the year in which the income is received. By paying in advance, you help the government and also yourself by not finding it hard to pay the whole tax at one go at the end. This way, if your advance tax liability for the financial year 2017-18 has exceeded Rs 10,000, you are expected to pay it in the same financial year.
The deadlines are: at least 15 per cent of the liability on or before June 15, 45 per cent by September 15, not less than 75 per cent by December 15 and the whole amount of the tax calculated, by March 15 of each financial year. If the estimate of one’s income changes as the instalments progress, the advance tax payable can be increased or reduced accordingly. Any amount paid up to March 31 will also be accepted as advance tax for that financial year.
Payment of advance tax: Self-employed and businessmen
|
Due date of instalment
|
Amount payable
|
|
On or before 15th September
|
Not less than 30% of the advance tax liability
|
|
On or before 15th December
|
Not less than 60% of the advance tax liability
|
|
On or before 15th March
|
100% of the advance tax liability
|
Payment of advance tax: Companies
|
Due date of instalment
|
Amount payable
|
|
On or before 15th June
|
Not less than 15% of the advance tax liability
|
|
On or before 15th September
|
Not less than 45% of the advance tax liability
|
|
On or before 15th December
|
Not less than 75% of the advance tax liability
|
|
On or before 15th March
|
100% of the advance tax liability
|
So, if you are a salaried employee, you need not pay advance tax as your employer deducts tax at source (TDS). Advance tax is applicable when an individual has sources of income other than his salary. For instance, if an assessee earns income via capital gains on shares, interest on fixed deposits, winnings from lottery or races, capital gains on house property besides his regular business or salaried income then after adjusting for expenses or losses he needs to pay advance tax. Even if you are salaried, the advance tax is payable even by salaried employees on their other income.
While employers deduct TDS on salaries, advance tax is paid on income that is not subject to TDS. Professionals (self-employed) and businessmen will have to pay taxes in advance as, given their business income, the liability can be huge. The same implies for companies and corporates.
How to file Advance Tax?
Individuals may pay advance tax using tax payment challans at bank branches authorised by the Income Tax (I-T) Department. It can be deposited with the Reserve Bank of India and all the other authorised banks. There are 926 branches in India that can accept advance tax payments. Individuals may also pay it online through the I-T department or the National Securities Depository.
Do not worry if you miss the deadline, because if you fail to pay or the amount you’ve paid is less than the mandated 30% of the total liability by the first deadline (15 September), you will need to pay an interest. This is computed @ 1% simple interest per month on the defaulted amount for three months. The same interest penalty would apply if you fail to pay the second deadline (15 December). Failing to pay the third and last deadline (15 March) would mean paying 1% simple interest on the defaulted amount for every month until the tax is fully paid.
And in case you land up paying a higher advance tax than you ought to, you will receive the excess amount as a refund. Interest @ 6% per annum will be paid by the Income Tax department to the assessee on the excess amount if the amount is more than 10% of tax liability.
Try to treat advance tax as an EMI to the tax department, which eventually helps you pay your income tax without being stressed about it. Likewise, use the payment of advance tax as an opportunity to stay a step ahead of your tax liabilities, so that you are not left worrying over how much you owe to the tax department at the end of the year, you also save yourself from paying penalties for not paying the taxes in advance. Moreover, you could contribute in your own small way towards nation building even as the government receives the advance tax money from you, which in turn is used towards infrastructure development of the country.
