Advance Tax, as per the Indian Income Tax laws, refers to paying a portion of your estimated annual income tax in advance, rather than in a lump sum at the end of the fiscal year. This system is in place to allow the government to receive a steady inflow of tax revenue throughout the year and to help taxpayers avoid a large end-of-year tax burden.
Who is Liable to Pay Advance Tax?
- Salaried, Freelancers, and Businesses: Advance tax applies to all taxpayers, including salaried individuals, freelancers, and businesses, if their estimated tax liability for the financial year is ₹10,000 or more. This includes income from capital gains, interest, rent, business, and profession. However, salaried individuals whose entire tax liability is taken care of by the TDS (Tax Deducted at Source) by their employer may not need to pay advance tax.
- Senior Citizens: Senior citizens (individuals who are 60 years or older and do not run a business) are exempt from paying advance tax.
How Advance Tax is Paid?
Advance Tax is paid in installments according to due dates set by the Income Tax Department. For individual taxpayers, the due dates for Advance Tax payments are typically as follows:
- 15% of the total Advance Tax liability on or before June 15th.
- 45% of the total Advance Tax liability (minus the first installment) on or before September 15th.
- 75% of the total Advance Tax liability (minus the first and second installments) on or before December 15th.
- 100% of the total Advance Tax liability (minus the previous installments) on or before March 15th.
Failure to pay Advance Tax or delay in its payment results in the levy of interest under Sections 234B and 234C of the Income Tax Act.
The payment can be made online through the Income Tax Department’s website or by physically depositing at specified banks using challan 280. It is crucial for taxpayers to estimate their income accurately and pay the applicable Advance Tax to avoid any penalties.
What Are the Interest Rates for Late or Non-Payment of Advance Tax in India?
If advance tax is not paid on time or is underpaid, the Indian Income Tax Act imposes interest penalties under Sections 234B and 234C. These are calculated as follows:
- Applicable when:
- You haven’t paid any advance tax, or
- The advance tax paid is less than 90% of the ‘assessed tax’.
- Rate of Interest: Interest is charged at 1% per month or part of a month.
- Period for which Interest is Calculated: The interest is calculated from April 1st of the assessment year (the year following the financial year) until the date of actual payment of tax.
- Applicable when:
- Advance tax installments are not paid by the due dates, or
- The amount paid is less than the required percentage of the total advance tax liability.
- Rate of Interest: Interest is charged at 1% per month or part of a month.
- Advance Tax Interest Calculation Details:
- If the shortfall in the advance tax installment is up to 15% of the required amount, interest is calculated for a period of 3 months.
- For shortfalls greater than 15% but up to 30% of the required amount, interest is again calculated for a period of 3 months.
- For shortfalls greater than 30%, interest is calculated for a period of 1 month.
- Specific Calculation Periods: The interest under Section 234C is calculated for specific periods based on which installment(s) were missed or underpaid.
It’s important to note that the ‘assessed tax’ in the context of Section 234B is the tax on your total income reduced by the amount of tax deducted/collected at source (TDS/TCS) and any relief of tax claimed under sections 90, 90A, and 91, excluding the tax credit for MAT (Minimum Alternate Tax) or AMT (Alternate Minimum Tax).
To avoid these interest penalties, taxpayers should estimate their income accurately and pay the requisite advance tax by the specified due dates.
How to deposit Advance tax in India? Can we Pay Advance Tax through Credit Card in India?
To deposit advance tax in India, you can follow these steps:
- Online Payment:
- Visit the Tax Information Network: Go to the website of the Tax Information Network (TIN) of the Income Tax Department.
- Select the Relevant Challan: Choose ITNS 280, which is the challan for payment of Income Tax.
- Fill in the Details: Enter your PAN, name, address, financial year, email ID, phone number, and the type of payment (i.e., Advance Tax).
- Choose the Bank for Payment: Select your bank from the list provided for net banking.
- Login to Your Bank Account: You will be redirected to your bank’s net banking page.
- Enter Payment Details: Fill in the amount of tax you need to pay and confirm the transaction.
- Generate and Save the Challan Counterfoil: The challan counterfoil is proof of payment. It contains the CIN (Challan Identification Number), payment details, and bank name.
Physical Payment at Bank Branches:
- You can also deposit advance tax physically at specified bank branches. You will need to fill out Challan 280 and submit it along with the payment at the bank.
