Advance Tax
Advance tax is being paid based on income estimated during the year. Advance tax paid at that time when the tax liability of a person exceeds Rs 10,000 in a financial year. Usually, the person earns income first and then pay tax on the same. In case of advance tax, assessee needs to estimate the income of the year in advance and after that makes the payment of tax partially or fully as per the convenience.
Who needs to make advance tax payments?
- Primarily, self-employed people like freelancers, businessmen or professionals, etc. need to make payment of advanced tax
- NRIs who are earning above 10,000 are liable to pay advance tax.
- All senior citizens who are not earning any income from business and profession gets an exemption from paying advance tax.
- Those who opt for the presumptive scheme under the Income Tax Act in the starting of Financial Year 2016-2017 are required to pay the whole amount of their Advance Tax on or before 15th March. After that 15 days, the grace period is also being given i.e. 31st March to make the payment of Advance Tax.
- This presumptive scheme is offered to small businesses where income is calculated at 8% of the turnover or gross receipt of the given business year. In case, gross receipts or turnover received by the way of an account payee bank draft or account payee cheque or using an electronic system, business income calculated at 6% of the turnover. The amount calculated becomes the final taxable income of the business and advance tax should be paid on that calculated amount.
What are the due dates of Advance Tax?
| Due dates of Installment |
Amount of advanced tax payable |
| On or before 15th June |
15% of Advance Tax payment |
| On or before 15th September |
45% of Advance Tax deducting previous installment |
| On or before 15th December |
75% of Advance Tax deducting previous installment |
| On or before 15th March |
100% of Advance Tax deducting previous installment |
What is the due date of paying advance tax for small businesses?
Small businesses that have opted for presumptive taxation schemes have to pay the entire amount of advance tax on or before 31st March each year. 6% and 8% are the two rates on which tax calculation is being done on their business receipts.
Advance Tax calculation
Installment of Advance tax is being paid based on the estimated income of the financial year. While doing the calculation of tax liability, you can also consider Section 80C. It is done based on the previous income trend of the taxpayer. They will do the estimation of future income and pay tax accordingly. Tax income calculated will be reduced by TCS collected, TDS deducted AMT/ MAY credit and any relief under a tax treaty. After making payment of the first two installments, the assessee can also revise the estimated income and make the next installment of advance tax accordingly.
Apart from this, Government also asks for the tax payment, here the responsibility is on the taxpayer to do the calculation of his or her income of an assessment year 2021-22 and make advance payment in the current financial year 2020-21. The reason for doing this is that a person who is earning income will better know about future trends than the tax authorities.
Interest Charges on Short Payment of Advance Tax Instalment
As per Section 234 B, if the assessee has not paid any advance tax or amount during the financial year which is less than 90 percent of total advance tax liability, interest will be charged at the rate of 1% per month starting from April 1 of the Financial Year. In other words, if you pay your advance tax by 31st March 2020-21, you will not be liable to pay interest.
Example
Person A
If a total tax liability of person calculated as Rs 50,000
Payment already done of the same on 15th June at the time of filing Income Tax returns.
A person needs to pay 1% of interest amount for three months- April, May, and June.
1% of 50,000= Rs 500
For three months, the interest will be Rs 500 x 3 = Rs 1,500 for not making advance tax payment.
Person B
Taxable income during the year is Rs 65,000
Payment made when filing ITR is Rs 55000
The amount is less than 90% of total tax liability, he was also required to pay interest at 1% of the balance amount.
1% of 10,000 for two months April and May = Rs 200
Process to pay advance tax online
There are many Income Tax Department authorized bank branches for receiving of Advance Tax on behalf of the government. A person can visit in any of the branches and make the required payment if chosen offline payment mode.
For online payment mode, the process is as follows:
Step 1
Visit the E-payment facility on the website of the Income Tax Department.
Step 2
Choose the right form for the payment of Advance Tax. For individuals, it is ITNS 280.
Step 3
Select the correct code for Advance Tax. The code number applicable is 100.
Step 4
Provide details such as PAN, name, address, email address, number etc.
Step 5
Once you click on proceed, you will be redirected to the net banking page or debit card payment gateway, whichever you have opted for.
Step 6
Make the payment.
Step 7
After making a successful payment, a receipt called Challan 280 on the next screen. Please save a copy of the same as needed at the time of filing ITR.
What in case of making an extra payment?
In case, extra payment towards the advance tax, one can claim a refund by filing and submission of Form 30. The claim of refund must normally be made in the Income Tax return filed before July 31st but in all such cases, the claim must be made within 1 year of the end of the relevant assessment year. For instance, for the Financial Year 2020-21, the assessment year will be 2021-22 of the same, so the claim must be made before 31st July 2021.
