What is Advance Tax?

Advance Tax

As the name suggests, advance tax refers to paying a part of your taxes before the end of the financial year. Also called ‘pay-as-you-earn’ scheme, advance tax is the income tax payable if your 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.

What is Advance Tax?

Advance tax means Income Tax should be paid in advance instead of lump sum payment at year end. It is also known as pay as you earn tax. These payments have to be made in installments as per due dates provided by the income tax department.

Who should pay Advance Tax?

Salaried, freelancers and businesses– If your total tax liability is Rs 10,000 or more in a financial year you have to pay advance tax. Advance tax applies to all taxpayers, salaried, freelancers, and businesses. Senior citizens, who are 60 years or older, and do not run a business, are exempt from paying advance tax.

Presumptive income for Businesses–The taxpayers who have opted for presumptive taxation scheme under section 44AD have to pay the whole amount of their advance tax in one instalment on or before 15 March. They also have an option to pay all of their tax dues by 31 March.

Presumptive income for Professionals– Independent professionals such as doctors, lawyers, architects etc. come under the presumptive scheme under the section 44ADA . They have to pay the whole of their advance tax liability in one installment on or before 15 March. They can also pay the entire amount by 31 March.

किसको  नहीं भरना पड़ता एडवांस टैक्स?

• अगर आप Salaried हैं और आपकी आमदनी का कोई अलग से स्रोत (Source) नहीं है तो आपको Advance Tax जमा नहीं करना होता है। क्योंकि आपका जो TDS कट जाता है, वह एक तरह का एडवांस टैक्स जैसा ही होता है। आपका Employer वित्तीय वर्ष खत्म होने के पहले ही टीडीएस के माध्यम से आप पर बन रहे Income Tax को काटकर सरकार के पास जमा कर देता है। आपके Form 16 में इसका Detail मौजूद रहता है।
• ऐसे Senior Citizen, जिनकी आमदनी का स्रोत कोई Business  नहीं है, उन्हें भी वित्तीय वर्ष 2012 से Advance Tax भरने में छूट मिली हुई है।

Due Dates for payment of Advance Tax

FY 2020-21 & FY 2021-22 for both individual and corporate taxpayers

How to calculate Advance Tax?

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Interest imposed under Section 234A, 234B and 234C, explained

Interest imposed under Section 234A:

Interest under section 234A is imposed when there’s a delay in filling ITR . Are you always late on filing your income tax returns? If yes, you may be in danger of attracting this penalty. The due date for filing the returns is usually before July 31 of every following assessment year. Under this Section, interest is charged at 1 % on the outstanding tax amount and must be paid from the first day after the due date of filing the return until the date of the actual filing of the return.

Calculating interest penalty under 234A:

For instance, Geeta has a total tax outstanding of Rs. 3,00,000 (Including net advance tax and TDS) Instead of filing her returns on July 31, she files it on January 15. She is now late by 6 months on the tax payment. Here’s how much she’s liable to pay:

Interest = 3,00,000 X 1% X 6 = 18000

Geeta will now have to pay Rs. 18,000 after the tax amount. The interest will continue until March 31st that is the end of the assessment year.

Interest imposed under Section 234B:

Interest under section 234B is imposed if you make incomplete tax payments. It is also levied in case of a delay in the payment of advance tax. You must pay interest under Section 234B if you are liable to pay advance tax but have failed to do so. However, it is also imposed if you have paid advance tax but the amount is less than 90% of the assessed tax.

Calculating interest penalty under 234B of the Income Tax Act:

Let’s say Priya must pay a total tax of Rs. 2,00,000 for the current fiscal year. The TDS deduction amounted to Rs. 1,82,650. On March 25, Priya paid Rs. 7,000 while the balance amount of Rs. 10,350 was paid on July 20. Let’s calculate the penalty now:

Assessed tax = Total Tax – TDS

= Rs. 2,00,000 – Rs. 1,82,650

= Rs. 17,350

Priya should have paid at least 90% of Rs. 17,350 which amounts to Rs. 15,615, on March 31. However, Priya only made a payment of Rs. 7,000. Hence Priya will have to pay an interest penalty on the assessed tax.

So Priya has to pay:

Rs. 15,600 (rounded figure) x 1% x 4 months (calculated till July) = Rs. 624.

Hence Priya is liable to pay Rs. 624, as a penalty on the interest of the assessed tax, under Section 234B.

Interest imposed under Section 234C:

Interest under section 234C is imposed when there is a delay in payment of an instalment of advance tax.

You pay interest under Section 234C if,

1. Advance Tax is paid on or before 15th June is less than 12% of Assessed Tax
2. Advance Tax is paid on or before 15th September is less than 36% of Assessed Tax
3. Advance Tax is paid on or before 15th December is less than 75% of Assessed Tax
4. Advance Tax is paid on or before 15th March is less than 100% of Assessed Tax.