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Advance Tax in India

Advance Income Tax Payment

Advance tax refers to the tax to be deposited by a taxpayer with the income tax department during the year without waiting for the end of the year. This is to ensure that the government is able to collect taxes more uniformly throughout the year. While the government collects tax at source by mandatorily applying TDS, in some cases a person's income though taxable, does not attract full TDS rate and hence, the person can claim income tax refund. Conversely, in some cases, TDS deducted may be less than the total tax liability for the year. In all such cases, advance tax has to be deposited.

Advance Tax Payment Criteria

If your total tax liability (after adjusting for TDS) exceeds Rs.10,000 (Rupees Ten Thousand) in a financial year, then you must pay advance tax. Advance tax applies to all tax payers including salaried, freelancers, professionals and senior citizens. However, senior citizens who are above 60 years of age and do not run a business are exempted from paying advance tax. While calculating the advance tax, you need to include income from all sources for the current year under various income heads. Some of the common exceptions for payment of advance tax are:

  • Senior citizens (above the age of 60 years) who are not running any business are exempt from paying advance tax
  • Salaried individuals under TDS net, are not required to pay advance tax on income from salary. However, they may still need to pay advance tax on income from other sources such as interest, capital gains, rent and other non salary income
  • If the TDS deducted is more than tax payable for the year, one is exempted from paying advance tax

How to calculate advance tax?

  • First of all, you need to estimate your income earned for the year. Note that the advance tax calculation is based on an estimate of income. The various heads of income that should be taken into account are: interest income, capital gains, professional income, rent, income of minors whose income is clubbed with that of the taxpayer and any other income that is likely to accrue during the year.
  • Now, add the salary income to the above income to determine the gross taxable income. Note that while advance tax is not payable on salary, the sum total of salary and income from other sources may change the applicable tax slab and result in additional tax liability.
  • Now, apply the latest applicable income tax slab to calculate the payable tax.
  • The next step is to subtract TDS that is already deducted or is likely to get deducted as per TDS slabs applicable for various types of income. For more on TDS rates effective 1st June 2016, click here.
  • In case the tax liability after deducting TDS is more than Rs. 10,000, you must pay advance tax.
  • Advance tax calculator is available online on Income Tax Department website. You can fill all the required details and know the amount you have to pay as advance income tax.
  • Note that sometimes, you may not be able to estimate the expected income correctly and at the end of the year, may find the income to be more than what you had expected. In such a scenario, in case you did not pay the full advance tax on time, you may be required to pay interest and penalty for no payment of advance tax. Hence, it is prudent to estimate the income carefully and pay slightly higher advance tax than what may be due. You can claim credit for the same in your ITR and get refund of the same.

Advance Tax Payment Due Dates for AY 2017-18

It is important to pay advance tax on or before the due dates to avoid paying interest and penalty at the time of filing annual return of income. Advance tax due dates for self employed, businessman and corporate taxpayers for FY 2016-17, AY 2017-18 are as follows:

Due Date Advance Tax Installment Amount
On or before 15th June Not less than 15% of advance tax liability
On or before 15th September Not less than 45% of advance tax liability
On or before 15th December Not less than 75% of advance tax liability
On or before 15th March 100% of advance tax liability

Advance Tax Payment Online

Now you can pay advance tax online by using Challan ITNS 280 and selecting "Type of Payment" as "(100) Advance Tax". The challan is available online on income tax department website https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp. Payment can be made using netbanking facility of major banks in India. Advance tax challan is generated instantly and is identified by 3 unique fields - (1) BSR code of the bank branch, (2) Date of payment and (3) serial number. Keep a copy of the challan with you and check that it reflects correctly in the Form 26AS available on income tax website. You can claim credit for the advance tax paid at the time of filing your ITR after the end of the year.

Penalty for non-payment of advanced tax

Interest under section 234B:- If you fail to pay advance tax or the tax paid by you is less than 90% of the assessed tax, then you will be liable to pay simple interest at 1% every month. In case no advanced tax is paid, interest will be calculated on the amount which is equal to the tax levied, or else it will calculated on the amount by which advance tax paid falls short of assessed tax.

Penalty under section 234C:- In case if you don't pay your due advance tax installment in time then you will be charged a simple interest of 1% for the next 3 months on the amount of shortfall as a penalty. The penalty is purely due to the delay in paying the due advance tax.

What if advance tax is paid more than required?

Sometimes it happens that the advance tax paid by you is higher than your tax liability. In that case you will receive the excess amount as a refund. However, if the amount is more than 10% of tax liability, you will be entitled to get an interest at the rate of 6% per annum from Income Tax Department.

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