Advance Tax

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Advance Tax

What is advance tax?

Simply put, it is an advance payment of tax. Instead of paying your taxes in one go at the year end, it has to be paid in installments. This scheme is also known as ‘pay as you earn’.  Advance tax means income tax paid in advance during the year on estimated current income in a number of installments. It applies to all categories of income and the amounts have to be paid before the due dates as provided  by the income tax department.

Who is liable to pay advance tax?

  1. According to section 208, every Assessee shall be liable to pay tax in advance during any financial year in respect of his total income, if the amount of advance tax payable exceeds ten thousand rupees[Rs.10,000/-]. Hence, tax has to be paid in advance if the total tax liability in the year is greater than Rs. 10,000/-
  2. The provision of sub-section (1) of section 208 shall not apply to an individual resident in India, who-

(a) Not having any income chargeable under the head “profits and gains of business or profession”; and

(b) is senior citizens having other source income like rent, interest etc

  1. Person who just earns salary income is not required to pay advance tax, as the employer deducts their (TDS). However, if an employee has any other income other than income from salary, the tax liability exceeds more than Rs. 10,000, and then required to pay advance tax. Advance tax is also applies, if the person earns through capital gains, lottery, house property and tax liability is exceed more than Rs. 10,000.

Senior citizens that do not have any business income, do not have to pay any advance tax. Anyone whose age is greater than 60 is classified as a senior citizen. Similarly, if the tax liability is less than Rs.10,000/- for any assessee, there is no need to pay tax in advance.

 

Installments and due dates:

For both individual and corporate taxpayers –
[other than assessee computing profits on presumptive basis under section 44AD(1) or section 44ADA(1)]
 Due date of installmentAmount payable
On or before 15th JuneNot less than 15% of tax liability
On or before 15th SeptemberNot less than 45% of tax liability, as reduced by the amount, if any, paid in the earlier installment.
On or before 15th DecemberNot less than 75% of tax liability, as reduced by the amount or amounts, if any, paid in the earlier installment or installments.
On or before 15th March(1)The whole amount of tax liability as reduced by the amount or amounts, if any, paid in the earlier installment or installments.

 

Earlier, the due dates of installments were different for ‘corporates’ and ‘other than corporates’. However, Amendments made in the Budget of 2016 changed the dates. These dates were simplified keeping them the same for all the assesses.

Opting for presumptive schemes under section 44AD or section 44ADA; pay advance tax by 15th March: –  

The due dates for anyone opting for the presumptive schemes u/s 44AD or 44ADA are different. Under these schemes, profit @ 8% or 50% have to be declared respectively. These schemes were launched for the benefit of small businesses. And hence, persons opting theses schemes are liable to pay advance tax in one installment on or before the 15th March of the financial year(1).

 

Read our article on interest on delayed payment of advance tax or late filing of income tax return here.

Do you want to calculate your advance tax? click here or visit: http://www.incometaxindia.gov.in/pages/tools/advance-tax-calculator.aspx

 

1. Note – Any amount paid by way of advance tax on or before 31st March shall also be treated as advance tax paid during each financial year on or before 15th March.

 

Author Info : Hrushrikesh Dumbre

 

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