Advance Tax

What is Advance Tax ?

Salaried person, freelancers, or business whose tax liability is more than Rs 10,000 in a financial year.

Advance tax, also called the ‘pay-as-you-earn’ scheme, as the name suggests, refers to paying a part of taxes before the end of the financial year. It is the income tax payable applicable to every asses see whether salaried person, freelancers, or business whose tax liability is more than Rs 10,000 in a financial year. It should be paid in the year in which the income is received. However, senior citizens, who are 60 years or older, and do not run a business, are exempt from paying advance tax.

Under the advance tax method, the tax liability is distributed in installments within the same financial year. Therefore, an ‘estimated tax’ must be paid in installments throughout the same financial year.

For better understanding, a table is illustrated below.

Points to be noted:

• The due date for the taxpayers showing business income and opting for the Presumptive Taxation Scheme under Section 44AD and 44ADA( Income-tax Act, 1961), is on or before March 15. On which 100 percent of estimated advance tax should be paid.
• In case total tax paid exceeds the actual tax liability, at the time of final tax returns at the end of the year the excess amount is refundable.
• The advanced income tax is calculated in the same manner as normal income tax and the same tax slabs apply to respective taxpayers. However, the method of filing advance income tax is different.

Consequences for non-filing/delay in filing/incomplete filing of advance tax:

• Section 234A of the Income Tax Act deals with delays in the filing of the income tax return. In case of delay in filing income tax returns, interest is charged @ 1% on the outstanding tax amount calculated from the first day after the due date of filing the return until the date of the actual filing of the return.
• Section 234B of the Income Tax Act deals with delayed/incomplete payment of advanced tax.In case an assessee fails to pay or pays less than 90% of the advance tax due amount, then interest @ 1% is payable on the tax dues.
• Section 234C of the Income Tax Act deals with delayed payment of advanced tax installment.

Complete detail of particulars are shown in a table below:

*Amount = Tax on total income less TDS less relief u/s 90 or 91 less tax credit u/s 115JD.

Note: It must be noted that if there is an increase in the taxpayer’s tax liability due to capital gains, income from lotteries or a new business, or dividends income referred to in Section 115BBDA of the Income-tax Act, the penalty will not be levied. The taxpayer would then be required to pay the advance tax in the subsequent installment.