As per section 208 of the Income Tax Act, advance tax is the income-tax which is payable in instalments if the tax liability in a financial year exceeds Rs. 10,000. Advance Tax is payable in the year in which the income is received.
Under the scheme of advance tax payment, income received under every head of income is liable for payment of advance tax in following instalments:
- On or before 15 June – not less than 15% of the estimated tax liability;
- On or before 15 September – not less than 45% of the estimated tax liability;
- On or before 15 December – not less than 75% of the estimated tax liability;
- On or before 15 March – not less than 100% of the estimated tax liability.
Advance Tax – What, How, Why?
Advance tax is paid:
- By the taxpayer himself as per the due dates;
- By the taxpayer, on receipt of notice of the Assessing Officer.
If the Assessing Officer is of the opinion that the taxpayer is liable to pay advance tax (after regular assessment of income of the taxpayer), then the assessing office may issue a notice to the taxpayer at any time during the financial year but not later than the last day of February of the financial year, specifying the instalment or instalments in which such tax is to be paid.
If the taxpayer’s estimate is lower than the estimate of the Assessing Officer as per the notice issued, then the taxpayer can submit his own estimate of income and the advance tax calculation thereon in Form No. 28A.
However, if the advance tax estimated by the taxpayer is higher than the amount estimated by the Assessing Officer then the taxpayer shall pay such amount as advance tax in accordance with his own calculation. In such a case, no intimation to the Assessing Officer is required.
What are the consequences of non-payment, late payment, false estimate of advance?
- Interest under section 234C – 1% simple interest is payable if advance is not paid as per the prescribed instalments schedule; and
- Interest under section 234B – 1% simple interest is payable if the taxpayer paid advance tax but the amount paid (before end of that financial year) is less than 90% of the estimated tax liability.
What is the difference between Advance Tax and Self-Assessment Tax?
- Advance Tax – Advance Tax and Self-Assessment tax both are income-tax with the difference of the time of payment. Advance tax is the income-tax which is payable in instalments if the tax liability in a financial year exceeds Rs. 10,000. It is payable in the year in which the income is received. Thus, Advance tax is paid on the annual estimated income of the taxpayer and is to be paid before the end of the Financial Year i.e. 31st March.
- Self-assessment tax – Self-assessment tax means balance tax payment by the taxpayer on estimated income after considering the tax deducted at source and the advance tax, before filing the income-tax return. Thus, Self-assessment tax is the tax paid as per the assessment of income made by the taxpayer at the time of filing of return.
How to deposit advance tax?
- Advance Tax is to be deposited to the credit of Government by using the prescribed challan, i.e., ITNS 280, which can be downloaded from www.incometaxindia.gov.in.
- Such tax can be paid in the designated banks either by physical mode (i.e., cash/cheque) or by e-payment mode (i.e. by using debit card or internet banking)
Is a salaried employee liable to pay Advance Tax?
- Income received under every head of income is liable for payment of advance tax. However, advance tax will not be payable on salary income if the employer of the salaried individual has correctly deducted tax at source on the total income of the individual.
- A salaried person may have income from other sources, capital gains, etc. which he may not have declared to his employer. In such cases, as tax doesn’t get deducted at source, advance tax is payable in instalments on such income.
What if your income tax liability reduces below ten thousand due to change in your income or tax slab?
- If after depositing the advance tax there is a change in your total income or the tax slab during the year due to which tax liability reduces below ten thousand rupees then you are eligible for a refund of the excess tax deposited.
How should you compute and pay advance tax on capital gains income?
- Advance tax payable on income received under every head of income which includes capitals gains income.
- As it practically may not feasible to determine the estimated capital gains income in advance, such tax liability shall be paid in remaining instalments.
Are senior citizens exempt from advance tax?
- Payment of advance tax is not applicable in case of senior citizens aged above 60 years (not having income from business and profession). However, if senior citizen is a non-resident or has income from business then they are subject to advance-tax provisions.
- Thus, if a person satisfies following conditions prescribed under Section 207 of the Income Tax Act, the person will not be liable to pay advance tax:
- The person is an individual;
- The person is a resident in India and is of the age of 60 years or above at any time during the year;
- The person does not have any income chargeable to tax under the head “Profits and Gains from Business or Profession.”
- However, it is important to note that though senior citizens satisfying the above conditions need not pay advance tax, they will have to file their tax return and pay tax on the taxable income.
Points to remember:
- Taxpayers can revise the estimated income and pay advance tax accordingly. There is no requirement of filing the estimation of income with the Government.
- While making payment of advance tax, the taxpayer should select and mention the correct amount and mode of payment, head of payment, assessment year, permanent account number, correct bifurcation of tax-surcharge-cess, etc.