What is Advance Tax: Due Dates, Benefits, Calculation & Who Should Pay
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Advance tax is levied on an individual who has other income sources in addition to a monthly salary. Such earnings can be from winning a lottery, fixed deposits, rent, capital gains from equity shares, etc. You can pay advance tax online or offline.
Read on to know the benefits, due dates, how to calculate and who should pay advance tax.
Table of contents
What is Advance Tax?
Advance tax means paying your income tax in advance instead of in bulk at the end of a financial year. If your income tax liability is Rs. 10,000 or more during a financial year, you need to make an advance tax payment. This tax needs to be paid in installments within the due dates as mandated by the Income Tax Department.
You can pay an advance tax through the bank branches that the IT Department has authorised. Payments can be made through challans available in the prescribed banks such as State Bank of India, Allahabad Bank, Syndicate Bank, HDFC Bank, RBI, and ICICI Bank.
Further, the payment can be made online through the portal of the Income Tax Department or via National Securities Depository.
Also Read: How To File Income Tax Return Using The New Tax Filing Portal?
Who Should Pay Advance Tax?
- Salaried, Self-Employed and Freelancers
When an individual’s income tax is Rs. 10,000 or above during a fiscal year, he/she will be liable to pay an advance tax. It is applicable to salaried and self-employed individuals and those who freelance. A citizen whose age is 60 years or above and who doesn’t have a business need not pay an advance tax.
- Presumptive Earnings for Professionals
Professionals such as architects, lawyers, and doctors fall under the presumptive taxation scheme of Section 44ADA. They are liable to pay advance taxes through a single instalment on or prior to March 15. They may also make the payment by March 31.
- Presumptive Earnings for a Business
Individuals who have availed presumptive scheme of Section 44AD will be paying advance taxes through a single instalment on or prior to March 15. Further, there’s an option to make the payment by March 31.
Benefits of Advance Tax
- It enhances financial management of businesses and helps compute total income in a year.
- Reduces the possibility of defaults on tax payments.
- Raises the government’s revenue since it earns interest on the money collected.
- Accelerates the tax collection procedure.
- Inculcates financial discipline among the taxpayers. That’s because payment of taxes in advance reduces their stress related to fund shortage or last moment tax payment.
How to Calculate Advance Tax?
You can accurately calculate your advance tax through an online advance tax calculator. Here’s an example:
Rohini is a professional painter (freelancer). Her annual gross income amounts to Rs. 18,00,000, and her expenses stood at Rs. 11,00,000 in FY 2019-20. She earned Rs. 10,000 as fixed deposit interest.
These were her investments and expenses in that financial year:
- Health insurance premium = Rs. 12,000
- LIC premium = Rs. 26,000
- Contribution towards PPF account = Rs. 40,000
Additionally, Tax Deducted at Source (TDS) will be applicable to her professional receipts. The TDS amount stood at Rs. 30,000. Her advance tax for FY 2019-20 will be calculated as follows:
| Particulars | Amount (Rs.) | Amount (Rs.) |
| Earnings from Profession: | ||
| Gross Income | 18,00,000 | |
| Less: Expenses | 11,00,000 | 7,00,000 |
| Other Sources of Income: | ||
| Fixed Deposit Interest | 10,000 | |
| Gross Total Income | 710,000 | |
| Less: Section 80C Deductions | ||
| LIC Premium | 26,000 | |
| Contribution to PPF | 40,000 | |
| Minus: Section 80D Deduction (Health Insurance Premium) | 12,000 | 78,000 |
| Total Income | 632,000 | |
| Tax Liability | 38,900 | |
| Plus: Cess @4% | 1,556 | |
| 40,456 | ||
| Minus: TDS | 30,000 | |
| Advance Tax Liability | 10,456 |
Advance Tax Payment Due Dates
In FY 2018-19 and FY 2019-20, the due dates for corporate and individual taxpayers are as follows:
| Due Date | Advance Tax Applicable |
| On or prior to March 15 | 100% of tax payable – advance tax paid |
| On or prior to December 15 | 75% of tax payable – advance tax paid |
| On or prior to September 15 | 45% of tax payable – advance tax paid |
| On or prior to June 15 | 15% of advance tax |
Taxpayers who have business income and availed presumptive scheme under Sections 44ADA and 44AD will be liable to pay 100% of the tax amount. For them, the due date is on or prior to March 15.
How to Pay Advance Tax Online
You can instantly pay your advance tax online through the payment portal of the Income Tax Department. Follow the steps below:
- Step 1: Visit the official website of TIN-NSDL.
- Step 2: Choose e-payment from the ‘Services’ section.
- Step 3: Select the correct challan for paying a tax (in this case, select advance tax).
- Step 4: Fill in the relevant information in the form, such as your bank name, email ID, phone number, address, and the assessment year. Next, enter your CAPTCHA code.
- Step 5: Your screen will now display the net banking page of your bank. Recheck the tax amount on this page.
Once you make the payment, you will get the challan number along with your payment details. Finally, through the paid tax section, you need to report that you have paid the advance tax.
Also Read: All You Need To Know About Tax On Savings Bank Account Interest
Final Word
The advance tax provisions are beneficial for both the taxpayers and the government. As it is collected in instalments, it reduces the stress related to lump-sum tax payments. Additionally, it helps to increase the government’s revenue swiftly. However, you must be well-informed about the various sections of the Income Tax Act before filing your tax returns.
FAQs on Advance Tax
You can pay your tax online through the portal of the tax department, where Challan 280 is made available for tax payment. On this portal, you need to choose Challan 280 and fill in the required details in the form. After that, you can pay taxes offline/online using it.
If you wish to make the tax payment offline, you need to download this challan from the IT Department website. Next, fill it up and submit it through an authorised bank.
Here are the exemptions related to advance tax:
In case the TDS deduction is more than the tax liability for a fiscal year, then there’s no need to pay an advance tax. A salaried individual who comes under Tax Deducted at Source net is not liable to pay an advance tax. However, advance taxes are applicable for any non-salary income such as rent, capital gains, and interest. A senior citizen whose age is 60 years or more is not liable to pay this tax.
If you have paid an advance tax that is lower than 90% of the assessed amount, then a 1% interest each month will be applicable as per Section 234B of the Income Tax Act.
Every month, the tax department will impose a 1% interest on the defaulted tax amount until you pay the tax amount in full. If you fail to pay an advance tax by the third or second due date, the same penalty will be in force.
Similarly, as per Section 23C, if you fail to make the instalment payment on time, 1% interest will be chargeable.
By the end of the year, if the tax department finds out that a taxpayer has paid more income tax than the applicable amount, then he/she will get a refund of that additional amount. An individual can claim a refund through the submission of Form 30.
In case your advance tax payment exceeds your total tax liability, then you will receive a refund of that excess amount. When the advance tax amount goes beyond 10% of the income tax applicable, then the tax department will pay 6% interest per annum.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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