Advance Tax – What? Why? When?


(Last Updated On: December 15, 2018)

It’ s time of the year when you hear the “Advance Tax” screeching the across the media.

Want to know how it affects you?

So, I am going to tell you everything you need to know about advance tax – the What, Why & When.

What is Advance Tax?

It is a tax which you pay in advance in the same year in which you earn income. Since you pay, during the course of your earnings, it is also named as “Pay as You Earn” tax.The good part is that you need to pay it in installments throughout the year and not in the lump sum.

Who is required to pay Advance Tax?

Under the Section 208 of Income Tax Act, 1961, whose estimated tax liability after deducting the TDS is Rs. 10,000/- or more is required to pay this. So, if you are a salaried person, then you are not required to pay as tax is already deducted by your employer. But, in case you have other incomes also, then you need to check your tax liability.

Use our tax calculator to calculate your tax liability.

However, there is an exception to this. If you are as the resident senior citizen (over 60 years) who do not have any income from business or profession, then there is no need for you to pay advance tax.

Since you have now understood that you are liable to pay advance tax, let’s discuss when you are supposed to pay Advance ?.

You are required to pay the advance tax in installments instead of lump-sum.There are different due dates for paying the different installment over the year. In FY 2015-16, the due dates and percent of advance tax were different for corporate taxpayers and individual taxpayers.But from the FY 2016-17, both categories of taxpayers have been brought at par. 

The due dates for Individual Tax-Payer’s for FY 2018-19  are:

Taxpayers covered under the presumptive scheme are required to pay the whole of tax at once before 15th March. Thus, persons who are opting for 44AD or 44ADA need not to pay the advance tax in 4 installments i.e. need to pay in one installment only in the month of March [For FY 2018-19, due date is 15-03-2019].

Let’s understand Advance Tax, with the help of an example:

Let’s say, Mr. Gupta, aged 45 years, salaried person. The estimated tax liability of Mr. Gupta shall amount to Rs. 3,00,000.The amount deducted by way of TDS is Rs.2,00,000. In this case, Mr. Gupta is liable to pay advance tax as his tax liability is more than Rs. 10,000. Thus, he is required to pay the amount of advance tax in the following manner:

How AdvanceTax Liability is calculated?

 Due DateAdvance Tax Liability Payable Advance Tax Payable(Rs.)Amount Already Paid(Rs.)Balance To Be Paid
June15%1,00,000 x 15%=15,000

Nil

15,000
September45% 1,00,000 x 45% =45,00015,00030,000
December 75%1,00,000 x 75% = 75,000

45,000

30,000
March100 %

1,00,000 x 100% = 1,00,000

75,00025,000

Total Amount Paid

 

1,00,000

It is also important to know that for calculating your advance tax liability, you have to only estimate your total income for the year.Do keep in mind the income you receive, the tax deducted at source and the investments you make. The tax is then calculated on this estimated total income.You don’t need to prove your projections to the Income Tax Department!

The steps are under:

  1. Estimate your total income from all the sources earned from 1 April- 31st March.
  2. Subtract the total tax-deductible expenses/investments.
  3. Compute tax on such Income.
  4. Reduce the amount of tax paid by way of TDS/TCS.

What you get is your advance tax liability. Now you need to pay advance tax in installments as discussed in the previous answer.

Do I need to pay Advance Tax on Capital Gain Income also?

If you earn any capital gain income after the due date of installments, then pay the entire amount of advance payable (after reducing TDS) in the remaining installments. When no installment is due, then pay by 31st March of the relevant financial year to escape the interest.

How can I pay Advance Tax?

Now that you have calculated your advance tax liability, its time to pay.You can pay advance tax online by following five simple steps-

  1. Login to http://www.tin-nsdl.com > Services > e-payment : Pay Taxes Online or click here.
  2. Select the relevant challan i.e. ITNS 280.
  3. Enter PAN and other mandatory challan details like, the address of the taxpayer and the bank through which payment is to be made etc. Select code 100 under “Type of Payment”.Select Assessment Year carefully.
  4. On submission, a confirmation screen will be displayed & you will be directed to the net-banking site of the bank.
  5. Login to the site id/password provided by the bank and enter payment details.On successful payment, a challan counterfoil will be displayed containing CIN, payment details and bank name through which e-payment has been made.

How will I verify the “Advance Tax Paid” to the Income Tax Department?

For this, after you make the payment go and check whether the amount is reflected in your 26 AS. This can be done by log-in to your income tax department account. You can Login to your bank’s website and click on the option view Form 26AS.

Normally, it takes 5-7 days to update on 26AS.

What if I don’t pay Advance Tax?

In case, you do not pay the advance tax correctly and on time you will be liable to pay interest.An amount of interest shall be charged from you under sections 234 B and 234 C as the case may be.If you have correctly paid your 100% dues on or before 15th March, then you are not required to pay any more tax at the time of filing of the return.The advance tax paid gets adjusted against the total tax liability. But, if the total advance tax paid is less than the total tax liability, then the balance amount of tax is to be paid along with interest.

How do I show the amount of Advance Tax Paid while filing my ITR ?

At the time of filing ITR, enter the amount of Advance Tax alongside TDS in the Prepaid Taxes section of ITR form.

We hope all your answers have been answered. In case, you still have any queries or need assistance, we are here at your service! Feel free to contact us at [email protected]

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Team Tax2Win