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Advance Tax-Collection of tax in advance


Further to our earlier article- Basics of Indian Income Tax for Entrepreneurs, today we will understand basics of Advance Income Tax


What is Advance Tax?

Tax payer is required to pay tax to the government on your income throughout the year as you earn this Income.
As the name suggests, advance tax refers to paying a part of your taxes before the end of the financial year. It is also called ‘pay-as-you-earn’ scheme. It should be paid in the year in which the income is received.

Why the advance tax?

These receipts help the government to get a constant flow of income throughout the year so that expenses incurred can be paid simultaneously, rather than receiving all tax payments at the end of the year.
Example: if your advance tax liability for the Financial Year 2016-17 has exceeded INR 10,000, you are expected to pay it in Financial Year 2016-17

Who needs to pay it?

If in a financial year taxpayer total tax liability exceeds INR 10,000 then taxpayer will be required to pay Advance Tax.

Salaried employee need not pay advance tax as employer deducts tax at source (TDS). Advance tax is applicable when tax payer has sources of income other than his salary.

For example, if an tax payer earns income from interest on fixed deposits, capital gains on shares winnings from lottery or races, capital gains on house property besides his regular business/salaried income then after adjusting for expenses or losses he needs to pay advance tax if tax liability exceeds INR 10,000.

It is to be noted that advance tax is payable even by salaried employees on their other income.
How to calculate advance tax?

Same as normal computation as per the Income Tax Act needs to made and tax liability is to be arrived (refer earlier article Basics of Indian Income Tax for Entrepreneurs ( for computation mechanism)

Who are not required to pay advance tax?

Resident Senior citizens, those who are 60 years or older and do not run a business, are exempt from paying advance tax.

A taxpayer opting for the presumptive taxation scheme of section 44AD will not be liable to pay advance tax in respect of business for which the presumptive taxation scheme of section 44AD is adopted.

And all other tax payers whose tax liability is less than INR 10,000

What are the due dates?

Installment Due Date Taxpayer
on or before not less than ( % of total tax liability)
1 15-Jun 15
2 15-Sep 45
3 15-Dec 75
4 15-Mar Total Tax
Note: Installments paid of earlier quarter are to be reduced

Note: Installments paid of earlier quarter are to be reduced

What if advance tax is not paid?

If advance tax is not paid or the amount of advance tax paid is less than 90% of the assessed tax, the taxpayer shall be liable to pay simple interest at the rate of 1% per month from 1st day of assessment year up to date of deposit tax and interest.
Further if the payment of advance tax is deferred beyond the due dates, interest at the rate of 1% Per month for a period of 3 months, will be payable for every deferment, except for the last installment of 15th March where it will be 1% for one month.

How to pay advance tax?

The payment of advance tax can be done by using the tax payment challans (ITNS 280) at the designated bank branches or through the online portal of the Income-tax department. The online payment facility has given a sigh of relief to the taxpayers. They can easily make the payment now from any corner of the world.
To sum up, tax payers needs to remember to pay advance tax on time and think again in case they are planning to miss the due-date as they may end up paying more towards interest

(The author CA Shakeel Ahmed Khan can be reached at [email protected]).

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