Advance Tax Payment is a set up to pay a share of your taxes in installments on due dates decided by the income tax department. It is also known as the ‘Pay as you earn scheme’.

What is Advance Tax Payment?

Advance tax means income tax that should be paid in advance instead of lump sum payment at year-end. It helps the Govt. to receive a constant flow of tax receipts throughout the year so that the Govt can incur its expenses timely rather than receiving all tax payments at the end of the year. This keeps the government rolling

Who is liable to pay Advance Tax?

The eligibility criteria you will have to fulfill in order to pay advance tax are:

  • Your tax liability should be INR 10,000 and above.
  • You should be a salaried or a self-employed individual.
  • Income received via capital gains on shares.
  • Interest earned on fixed deposits.
  • Winnings earned from a lottery.
  • Rent or income earned from house property.

Exemption in Advance Tax Payments

  • Senior citizens aged 60 years and above are exempted from paying the advance tax.
  • Salaried individuals falling under the TDS net are exempted from paying the advance tax.
  • However, any earnings from sources such as interest, capital gains, rent, and other non-salary income will attract advance tax.
  • If TDS deducted is more than the tax payable for the year, then one does not have to pay the advance tax.

Payment of Advance Tax:

You can choose to pay advance tax by any of the following modes:

  • Offline Mode: You can pay advance tax using Challan 280 just like any other regular tax payment at bank branches authorized by the Income Tax Department.
  • Online Mode: You can also pay it online through the official website of the Income Tax department.

Due date and Penalty on late payment

Computing the exact advance tax liability sometimes gets very difficult and therefore the Income Tax Dept has released an Income Tax Calculator which is free to use by everyone. If your tax liability is more than INR 10,000- you should pay your taxes on or before the dates mentioned below. Also, you will need to pay a penalty in case you miss paying it.

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Interest on late payment of Advance Tax is applicable as follows

  1. Interest under section 234C – Interest @ 1% per month is payable if the tax is not paid as per the above schedule i.e. for Deferment in Instalments of Advance Tax
  2. Interest under section 234B – Interest @ 1% is payable if 90% of the tax is not paid before the end of the financial year i.e. for Default in Payment of Advance Tax
  3. For computing Interest u/s 234A/B/C and any other Interest, Income Tax shall be rounded off to nearest hundred and fraction of hundred shall be ignored

Refund in Advance Tax Payment

At the end of the year, if the Income Tax Department finds out that you have paid more tax than you should have paid, then it will refund the excess amount. Taxpayers can claim a refund by filling out and submitting Form 30. They have to make the claim within a period of one year from the last year of the assessment year

Wealth Cafe Advise

Where you are earning any income on which taxes could be more than INR 10,000 and the same is not deducted as TDS, then you must compute the same and pay it as advance taxes. It is best to consult a chartered accountant before 31 March so in case there are any advance taxes to be paid, you can do so without levying any penalty.

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