Advance tax is a crucial aspect of tax planning for individuals and businesses with significant income. Understanding advance tax and its implications can help you stay compliant and avoid penalties. In this blog, we will explain what advance tax is, who needs to pay it, and how to calculate and pay advance tax.
1. What is Advance Tax?
Advance tax, also known as ‘pay-as-you-earn’ tax, is the income tax that is paid in advance instead of a lump sum payment at the end of the financial year. It is applicable to individuals, businesses, and professionals whose estimated tax liability exceeds INR 10,000 in a financial year.
2. Who Needs to Pay Advance Tax?
Advance tax is applicable to the following categories of taxpayers:
- Individuals with income from sources other than salary, such as business income, interest, capital gains, and rental income.
- Freelancers and self-employed professionals with significant income.
- Businesses with substantial income from operations.
- Salaried individuals with additional income from other sources or if their employer has not deducted sufficient TDS.
3. Calculation of Advance Tax
To calculate advance tax, follow these steps:
- Estimate your total income for the financial year from all sources, including salary, business income, interest, capital gains, and rental income.
- Deduct eligible deductions and exemptions under sections like 80C, 80D, and 24(b) to arrive at your taxable income.
- Calculate the tax liability on the taxable income using the applicable income tax slabs and rates.
- Subtract the TDS (Tax Deducted at Source) already deducted by your employer or other deductors from the estimated tax liability.
- The remaining tax liability is your advance tax liability for the financial year.
4. Advance Tax Payment Schedule
Advance tax is paid in installments as per the following schedule:
- On or before 15th June: 15% of the advance tax liability
- On or before 15th September: 45% of the advance tax liability
- On or before 15th December: 75% of the advance tax liability
- On or before 15th March: 100% of the advance tax liability
5. How to Pay Advance Tax
You can pay advance tax online through the Income Tax Department’s e-payment portal or by visiting designated bank branches. Follow these steps to pay advance tax online:
- Visit the Income Tax Department’s e-payment portal (https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp).
- Select ‘Challan No./ITNS 280’ and fill in the required details, such as PAN, assessment year, type of payment (advance tax), and bank details.
- Proceed to make the payment using net banking or debit card.
- Save the receipt and challan for future reference.
6. Implications of Non-Payment of Advance Tax
Failure to pay advance tax or underpayment of advance tax can result in interest and penalties under Sections 234B and 234C of the Income Tax Act:
- Section 234B: Interest at 1% per month or part of the month on the unpaid tax amount from 1st April of the assessment year until the tax is paid.
- Section 234C: Interest at 1% per month or part of the month on the shortfall in advance tax installments.
How We Can Help
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Conclusion
Advance tax is an essential aspect of tax planning for individuals and businesses with significant income. By understanding advance tax and its implications, you can stay compliant, avoid penalties, and ensure smooth tax payments.
For professional assistance and expert guidance, visit Our Tax Partner. We are here to help you navigate the complexities of income tax filing and ensure a smooth and hassle-free experience.
