You may have seen messages and newspaper advertisements from the Income Tax department asking tax payers to pay their Advance Tax before 15th December. Seeing this often causes people to wonder if they’re supposed to pay tax / not pay tax, is it meant for them and so on…
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So what exactly is Advance Tax?
According to Section 208 of the Income tax Act, 1961, every person whose estimated tax liability for the financial year exceeds Rs.10,000 has to pay tax in advance.
By when should it be paid?
For salaried employees (with income other than salary), self-employed professionals and businessmen, this has to be paid in three instalments as prescribed by the income-tax department:
– On or before 15th September: Up to 30% of advance tax payable
– On or before 15th December: Up to 60% of advance tax payable
– On or before 15th March: Up to 100% of advance tax payable
No supporting documents are needed while paying advance tax.
And who does it apply to?
If in a financial year your total tax liability exceeds Rs.10,000 you are required to pay Advance Tax.
If you are a salaried employee and your employer deducts tax on salary, you do not have to pay advance tax. However, if you have income from other sources like interest on FDs, capital gains and others, it would be a good idea to calculate your overall tax liability and check if you’re required to pay advance tax.
If you are a freelancer, TDS at 10% is usually deducted from your payments. Based on your overall income, you can calculate if this TDS covers your tax liability for the year. If it doesn’t, then you need to pay Advance Tax.
As per Section 207 of the Income Tax Act, senior citizens – those who are 60 years or older and do not have income from a business or profession, are exempt from paying advance tax.
Making advance tax payment
Advance tax payment can be made offline by filling in Challan no. 280 at branches of authorised banks or online via the Income Tax department’s website. If your income and expenses are not constant throughout the year, you can always re-calculate your taxable income and adjust the tax payments accordingly.
What happens if you don’t pay advance tax?
Non-payment of advance tax on time will attract 1% simple interest per month on the amount due.
If you had a tax liability as of 15th September, no TDS was deducted, and you didn’t pay advance tax, you now have to pay 1% simple interest per month of the advance tax as penalty in addition to the tax itself, before 15th December.
If you miss this date as well, your total amount payable before 15th March next year would be 1% interest per month on the tax due for the first instalment for six months (till 15th March), and 1% interest per month for three months on tax pending since the second instalment.