Advance tax is a type of income tax that has to be deposited with the Income Tax Department before the end of a financial year
We frequently hear about businessmen or movie stars paying advance taxes amounting to crores of rupees. But do you know the difference between self-assessment tax -- which is filed at the end of a financial year -- and the advance tax?
What is advance tax?
Advance tax is the income tax which is paid by the taxpayer in advance instead of making a lump sum payment at the end of the financial year. You will have to pay at least 15 per cent of your advance tax by June 15, 45 per cent by September 15, 75 per cent by December 15, and 100 per cent by March 15.
How is advance tax different from self-assessment tax?
Advance tax is paid in instalments throughout the year as you earn income, rather than a lump-sum payment at the end while self-assessment tax is paid at the end of the financial year or when filing the tax return.
Who should pay advance tax?
Salaried individuals, freelancers, and businesses with income sources such as salaries, freelance earnings, business profits, rental income, etc. if their total tax liability exceeds Rs 10,000 after adjusting for TDS?
Senior citizens, who do not have income from business, are exempt from this provision. However, senior citizens with business income are required to pay advance tax.
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Taxpayers opting for the presumptive taxation scheme under Section 44AD (for businesses) or Section 44ADA (for professionals) have to pay the whole income tax advance in one instalment on or before March 15, with an option to pay by March 31.
Non-Resident Indians (NRIs) who have income accruing in India and the tax payable is more than Rs 10,000.
What happens if you don’t pay advance tax?
Non-payment of advance tax will result in levy of interest under 234B and 234C of the Income-tax Act, 1961.
Section 234B touches upon fines and penalties that the income tax department can impose in case of a default. Liability under section 234B can also arise when there is a delay in paying advance tax.
Section 234B interest calculation starts from the end of the financial year, i.e. for FY 2023-24 interest under section 234B will start from 1st April 2024.
“The income tax department strives to make it as easy and convenient for citizens to comply with advance tax payments. So, one has the option of paying it in 4 instalments over the financial year,” said Manikandan S, Tax Expert of Cleartax
“However, if you still default, there are some consequences in the form of an interest penalty. Basically, Section 234C deals with interest to be levied on defaulters of advance tax instalment payments,” he said
Let us understand the calculation with the help of an example from Cleartax.
For example, Radhika’s total tax liability is Rs 48,000. Radhika paid this amount on 12th June while filing her return. No tax was deducted at source in her case. Radhika’s total tax liability is more than Rs 10,000, and hence she was liable to pay advance tax. As a result, Radhika will be liable to pay interest under section 234B.
Interest calculation:
Rs 48,000 x 1 per cent x 3 (April, May, June) = Rs 1,440. So Radhika is liable to pay Rs 1,440 interest as per section 234B.
How to pay advance tax?
Go to the Income Tax Department’s e-filing portal.
Log in using your user ID (usually your PAN) and password.
Under the 'e-File' tab, select 'e-Pay Tax'.
Choose the relevant assessment year for which you are paying advance tax.
Under the 'Type of Payment' section, select 'Advance Tax (100)'.
Fill in the required details such as PAN, name, address, and the amount you wish to pay as advance tax.
You can pay using various modes such as debit card, net-banking, RTGS/NEFT, UPI, and credit card.
Complete the payment using your chosen mode. Once the payment is successful, you will receive a confirmation.