What is advance tax and who should file it?

Payment of tax liability by a person before the end of the financial year is called advance tax

Jun 08, 2018 11:06 IST India Infoline News Service

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 Rs10,000 in a financial year. It should be paid in the year in which the income is received.
 
Rather than receiving all tax payments at the end of the year, advance tax receipts help the government get a constant flow of income throughout the year so that expenses can be met. For instance, if your advance tax liability for the financial year 2017-18 has exceeded Rs10,000, you are expected to pay it in FY17-18 itself.

Who should file it? 

If you are a salaried employee, you need not pay advance tax as your employer deducts it at source, known as TDS (tax deducted at source). Advance tax is applicable when an individual has sources of income other than his salary. For instance, if an assessee earns via capital gains on shares, interest on fixed deposits, winnings from lottery or races, and capital gains on house property besides his regular business/salaried income, then he needs to pay advance tax on all income after adjusting expenses or losses. While employers apply TDS on salaries, advance tax is paid on income that is not subject to TDS. Professionals (self-employed) and businessmen will have to pay taxes in advance as, given their business income, the liability can be huge. The same implies for companies and corporates.

Payment of advance tax: Self-employed and businessmen

Due date of installment Amount payable
On or before September 15 Not less than 30% of the advance tax liability
On or before December 15 Not less than 60% of the advance tax liability
On or before March 15 100% of the advance tax liability


Payment of advance tax: Companies

Due date of installment Amount payable
On or before June 15 Not less than 15% of the advance tax liability
On or before September 15 Not less than 45% of the advance tax liability
On or before December 15 Not less than 75% of the advance tax liability
On or before March 15 100% of the advance tax liability


Advance tax has to be paid on the 15th of September, December, and March in instalments of 30%, 30%, and 40%, respectively, for self-employed individuals as well as businessmen. Companies need to pay advance tax on the 15th of June, September, December, and March.
 
How to file advance tax? 
 
Individuals may pay advance tax using tax payment challans at bank branches authorized by the Income Tax (I-T) Department. It can be deposited with the Reserve Bank of India, State Bank of India, ICICI Bank, HDFC Bank, Indian Overseas Bank, Indian Bank, Allahabad Bank, Syndicate Bank, Axis Bank, Punjab National Bank, Punjab & Sind Bank, and other authorized banks. There are 926 branches in India that accept advance tax payments. Individuals may also pay it online through the I-T department or the National Securities Depository Ltd (NSDL).
 
If you miss the deadline?
 
If you fail to pay your advance tax or the amount you pay is less than the mandated 30% of the total liability by the first deadline (September 25), you will be liable to pay interest on the amount, which comes to 1% simple interest per month on the defaulted amount for three months.
 
The same interest penalty would apply if you fail to pay the amount by the second deadline (December 15). Failing to pay the third and last instalment (March 25) would mean paying 1% simple interest on the defaulted amount for every month until the tax is fully paid.
 
What if advance tax paid is more than required?
 
If the amount paid as advance tax is higher than the total tax liability, the assessee will receive the excess amount as a refund. Interest @6% per annum will also be paid by the I-T Department to the assessee on the excess amount (if the amount is more than 10% of the tax liability).

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