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What is Advance Tax?

Known as “pay-as-you earn” scheme, advance tax refers to paying some part of your tax in advance i.e. before the end of the financial year instead of paying the lump sum amount at the end of it and thus is a constant source of income for the government throughout the year so that the expenses can be met. You can also made these payments in four installments as per due date received by the income tax department i.e. on 15th June, 15th September, 15th December and 15th March of the current financial year.

As per Section 208 of the Income tax Act 1961, you are liable to pay the advance tax if your tax liability for the current financial year exceeds Rs 10,000 after TDS has been deducted by your employer and it should be paid in the same year in which the income is received i.e. in the financial year preceding the assessment year and that’s the basic difference between the advance tax and self-assessment tax which you have to pay in the assessment year itself before filing your income tax returns. Unlike advance tax, there is no specified date for paying self-assessment tax and can easily be paid by filing a tax challan online or at specified bank branches.

How to Calculate and file Advance Tax?

Wherein on one side, advance tax helps the government with the constant cash flow to meet the regular expenses, it also helps the taxpayers and by paying the tax in advance, you as a taxpayer do not have to worry about the money shortage or the hassle of tax payment at the last moment. It also saves people from defaulting on their tax payments.

Who should pay the advance tax?

Not every individual is liable to pay the advance tax and is paid only if you have other income sources other than your regular salary because if you are a salaried employee, TDS gets deducted by your employer and thus you need not pay any advance tax further to TDS. However, if you have income sources other than your salary and your tax liability of a financial year exceeds Rs 10,000 then you are liable to pay the advance tax. Some of the income sources which attract advance tax are as below:

  1. Any winnings earned from a lottery;
  2. Rent generated from the house property;
  3. Any interest earned on fixed deposits;
  4. Any income received via capital gains on shares.

For salaried, freelancers and businessmen- If you are a salaried person or a freelancer or a businessman having more than one source of income, you are liable to pay the advance tax on the dates specified by the income tax department. Freelancers and businessmen are liable to pay the advance tax because considering their tax liability is in proportionate to their earnings.

However, for senior citizens i.e. if you are of 60 years or above and do not run a business or employment, you are exempt from paying advance tax. Also for the businesses that have opted for the presumptive taxation scheme are also exempted from paying advance tax in installments and rather have to pay the same in one go on or before 15th March.

You can opt for presumptive tax scheme if you are running a small business and are not equipped enough to maintain your accounting details and calculate your profit or loss and considering the very same fact, Income Tax Department has come up with presumptive taxation scheme under which provisions are made to estimate your income based on the gross receipts of business and this scheme was extended to professionals such as advocates, doctors, architects etc provided their gross receipts is up to 50 lakhs.

Due dates for payment of advance tax:

  1. For individuals and corporate: FY 2017-18 and FY 2016-17

    On or before 15th June 2017 – 15% of the estimated advance tax;

    On or before 15th Sept 2017 – 45% of the total estimated advance tax;

    On or before 15th Dec 2017 – 75% of the total estimated advance tax;

    On or before 15th Mar 2018 – 100% of the total estimated advance tax.

  2. For those who have opted Presumptive Taxation Scheme – Business Income

    By 31st March – 100% of advance tax

  3. For taxpayers who have opted for Presumptive Taxation Scheme having business income from plying, hiring or leasing of goods carriages under Section 44AE:

    On or before 15th June 2017 – 15% of the estimated advance tax;

    On or before 15th Sept 2017 – 45% of the total estimated advance tax;

    On or before 15th Dec 2017 – 75% of the total estimated advance tax;

    On or before 15th Mar 2018 – 100% of the total estimated advance tax.

  4. For FY 2014-15 and FY 2015-16:

    Due Date For individuals For corporate taxpayers
    On or before 15th June - 15% of the estimated advance tax
    On or before 15th September 45% of the estimated advance tax 45% of the estimated advance tax
    On or before 15th December 75% of the estimated advance tax 60% of the estimated advance tax
    On or before 15th March 100% of the estimated advance tax 100% of the estimated advance tax

How to file advance tax?

Advance tax 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 and Sindh Bank and any other banks which are authorized by the Income Tax Department. In total there are total 926 branches in India that accept advance tax payments. You can either pay the advance tax by using tax payment challans at the banks authorized or online through the I-T department or the National Securities Depository Limited (NSDL).

As mentioned above, the advance tax is paid when the tax liability of the assesse exceeds Rs 10,000 in a financial year and in case you end up paying more than required advance tax, you will receive the excess amount as a refund and in case the advance tax paid by you is excess by 10% of the tax liability, Income tax department will send the refund at the interest rate of 6% per annum. You can calculate if you have to pay advance tax and also how much advance tax you have to pay by following few steps such as:

  • Estimate your income: You have to calculate your income other than your salary and it is important to add and include any pending and ongoing agreements that might pay out later.
  • Deduct the expenses: While to calculate your income, it is important to deduct your expenses from the same, including expenses related to your work such as travel expense, internet costs, work place rent, phone costs and any other costs related to it.
  • Sum up all income: You must include all the income coming your way other than the salary such as income in form of rent, interest, income etc. Also deduct the TDS from your salaried income so that you have clear idea of your total income.
  • Total advance tax: After you have summed up the total income and if total tax liability on it is more than Rs 10,000, then you are liable to pay the advance tax.

You would need to follow below mentioned steps to file your advance tax, such as:

  1. Get hold of your liability and calculate your tax liability by using tax slabs, deductions and surcharge as normal for the coming financial year;
  2. Select Challan No 280 from the government’s tax information network;
  3. Go on the e-payment page, fill in the complete details like applicable tax type, PAN Card details and assessment year i.e. for the financial year 2018-19, you have to select assessment year 2019-2020.
  4. Once you have filled in all the details, select (100) advance tax option for the payment.
  5. You can make the advance tax payment either by credit or debit card or through netbanking;
  6. Once you have made the payment and it is accepted, a challan or receipt with a specific number will be generated. You need to save the receipt and quoted on your future tax filings for the financial year.
  7. Once you have made the payment, it is important to report the same and you can do so by filing an additional entry under the paid tax page.

As per the guidelines of the Income tax Act 1961, if you miss the due date of advance tax date or the amount you have paid is less than 30% of the total liability by 25th September, interest rate of 1% will be applicable on the defaulted amount for three months and same interest penalty will be applicable on the amount if you miss even the second deadline i.e. 15th December and finally if you miss on the third and final deadline as well i.e. 25th March, you would end up paying 1% simple interest on the defaulted amount for every month till you pay the complete tax amount.

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