Advance tax, as the name suggests, means paying taxes in advance, as per a given schedule, before the end of the financial year. You would be familiar with income tax and that it is payable or recovered before the end of a financial year.
Currently payable on a quarterly basis, this helps the government get tax revenue on an ongoing basis. From the taxpayer’s perspective, there are smaller payments done each quarter, which are easier on the pocket, instead of one lump-sum tax payment in March.
Understanding Advance Tax
Advance tax is payable by
– all individual tax payers – whether salaried, freelancers or professionals – meaning every person whose estimated tax liability for the financial year exceeds Rs.10,000, as per Section 208 of the Income tax Act, 1961. Other than salary*, income from capital gains, income from business / profession, house property, bank interest and others will be considered (*Tax on salary will be deducted by the employer )
– all businesses
* Advance tax is not applicable for senior citizens who are 60 years or older and do not have income from a business or profession, as per Section 207 of the Income Tax Act.
When is advance tax payable?
– on or before 15th June: 15% of the estimated tax liability
– on or before 15th September: 45% of the estimated tax liability
– on or before 15th December: 75% of the estimated tax liability
– on or before 15th March: 100% of the tax payable
Penalty for delay / non-payment of advance tax
– Delay or default in payment of advance tax would attract interest under Section 234B and 234C
– Simple interest at 1% per month on the amount due from Apr-Dec, 1% for quarter ending March
– If not paid on time, interest accrues and has to be paid on all pending installments
– Interest is also levied if the total advance tax paid (including TDS) is less than 90% of the assessed 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 which has detailed instructions. 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.