A taxpayer normally pays off his tax liabilities to the Income Tax Department after the end of the relevant financial year. But in case of advance tax payment, the tax is paid between the financial year.
What is the Concept of Advance Tax ?
When a taxpayer pays his tax liability of a particular financial year before the end of that financial year then it is called Advance Tax payment. Means he is paying as he earns.
Generally, all Individuals who have income sources other than salary are liable to pay advance tax. For Salaried employees there is no need to pay advance tax because their employer deducts TDS based on estimated income of employees and deposit it with income tax department on behalf of employees.
A taxpayer only has to pay advance tax when he owes more than ₹10,000 as tax to the Government. It can either be paid online or through banks. However, taxpayers are not required to pay it at once, they can break the amount in instalments to be paid on specific due dates as they earn. These paymentsneed to be done at the specific times.
A taxpayer who is liable to pay advance tax is required to estimate his current income and compute taxes as per rates applicable to him. Out of these total taxes, he has to pay only some percentage at the specified dates. As per rule, By June 15th or earlier, a taxpayer should pay at least 15% of the total tax he owes to department. By September 15th, pay 45% of the total tax. By December 15th, pay 75% of the total tax. Finally, make sure to pay the full amount of tax by March 15th.
Advance tax needs to be paid without having to submit any estimate or statement of income to the assessing authorities.After making payment of first/ second instalment of advance tax, a taxpayer can revise the remaining instalments of advance tax in accordance with his revised estimate of current income and pay tax accordingly, without any requirement of filing the revised estimate of advance tax.
After the end of financial year, a taxpayer shall compute his total tax based on actual income. From this total tax, he shall adjust advance tax already paid. Then if tax liability is more than advance tax already paid, he has to pay the balance tax liability. If he has paid advance tax more than his actual tax liability then he can claim refund of it. He has to file his tax returns to pay his extra tax liability or to claim refund, whatever case may be.
Who Should Pay Advance Tax?
It is obligatory to pay tax in every case where the advance tax payable is Rs 10,000 or more.
A senior citizen (i.e., a resident individual who is at least 60 years of age at any time during the financial year) not having any income from business /profession, is not liable to pay advance tax.
The taxpayers who have business tax liabilities calculated as per presumptive taxation scheme under section 44AD are required to pay advance tax in one full instalment before the due date.
Salaried individuals falling under TDS net are exempted from paying the advance tax. However, any earnings from sources such as interest, capital gains, rent and other non-salary income will attract advance tax.
If TDS deducted is more than the tax payable for the year, then one does not have to pay the advance tax.
How to Pay Advance Tax in India?
To pay advance tax liability, a tax payer has to login to his income tax account using the following link:
https://eportal.incometax.gov.in/iec/foservices/#/login
Then go to e-file and then e-pay tax.
Then select new payment>>Income Tax>> Select Assessment Year>> Advance Tax>>Fill amount. Then proceed with selecting any suitable option for making the payment.
Which Income is liable for advance tax?
Under the scheme of advance payment of tax, every income including capital gains, winnings from lotteries, crossword puzzles, etc.is liable for payment of advance tax.
Advance tax shall be paid in four different instalments due on specific dates before the financial year ends.
Advance tax due dates, are given below-
| Due date of payment of advance tax | For any assesses (except on eligible assesses given in the column 3) | An assesses who declares his business/professional income in accordance with the provision of section 44AD(1) or section 44ADA(1) |
| On or before June 15 of the previous year | Up to 15 per cent of advance tax payable | – |
| On or before September 15 of the previous year | Up to 45 per cent of advance tax payable | – |
| On or before December 15 of the previous year | Up to 75 per cent of advance tax payable | – |
| On or before March 15 of the previous year | Up to 100 per cent of advance tax payable | Up to 100 per cent of advance tax payable |
What are the benefits of Paying Advance Tax?
Advance tax helps in reducing stress of taxpayers. By paying tax in advance, taxpayers do not have to worry about money shortage or tax payments at the last moment. Advance tax payment saves people from defaulting on their tax payments. It helps businesses in managing their finances well and provides an idea of the income they have earned during the year.
Late payment or no payment of advance tax will lead to unnecessary interest penalties.
It speeds up the tax collection process and overall impacts positively for government.It increases government funds as the government can earn an interest on the collected amount.
Can we claim refund of extra Advance Tax Payment?
After the end of financial year, a taxpayer shall compute his total tax based on actual income. From this total tax, he shall adjust advance tax already paid. Then if tax liability is more than advance tax already paid, he has to pay the balance tax liability. If he has paid advance tax more than his actual tax liability then he can claim refund of it. He has to file his tax returns to pay his extra tax liability or to claim refund, whatever case may be. In fact, government pays specified interest if it has collected more advance tax then actual tax liability.
Other points-
Any payment of advance tax made on or before March 31 shall also be treated as advance tax paid during the financial year.
If the last day for payment of any instalment of advance tax is a day on which the receiving bank is closed, the assesses can make the payment on the next immediately following working day, and in such cases, the mandatory interest leviable would not be charged.
It is not necessary for a taxpayer to make payment of taxes from his own account in an authorized bank. Ataxpayer can make electronic payment of taxes also from the account of any other person. However, the challan for making such payment must clearly indicate the Permanent Account Number (PAN) of the taxpayer on whose behalf the payment is made. Moreover, now process of paying advance tax is simpler as a taxpayer has simply login to his income tax account and pay the challan. He has to login to his income tax account but payment can be done using net banking, debit/credit card etc. of any other person.
Disclaimer: This article is just to make you understand about basic concepts. Please take Professional advice in case you have any doubts.
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