Advance Tax Payment: Eligibility, Calculations & Exemption
The payment of income tax is required to be made on an estimated basis during the financial year itself. The legal provisions of payment of the advance tax are mandatory in case the tax payable is more than Rs. 10,000/- in a financial year. Non Payment of Advance tax may impose additional Interest on Income Tax at Time of Income Tax Return FIling
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What is Advance Tax Payment
Advance tax is tax payable by individuals/LLP/Company or any other entities who have sources of income other than their salary. This is applicable to rent, capital gains from shares, fixed deposits, lottery winnings, etc. It can be paid online or through certain banks.
Advance tax is also known as ‘Pay as you earn’ scheme. The tax is payable if your tax liability exceeds Rs.10,000 in a financial year. The tax should be paid in the same year in which the income was received.
Who is liable to pay Advance Tax?
The eligibility criteria you will have to fulfil in order to pay advance tax are:
- Your tax liability should be Rs.10,000 and above.
- You should be a salaried or a self-employed individual.
- Income received via capital gains on shares.
- Interest earned on fixed deposits.
- Winnings earned from a lottery.
- Rent or income earned from house property .
Due Date for Advance Tax Installment Payment
Listed below is the advance tax schedule for self employed and businessmen
On or before September 15th
Not less than 30% of the advance tax liability
On or before December 15th
Not less than 60% of the advance tax liability
On or before March 15th
100% of tax liability
Advance Tax for Assessees (apart from the ones who are covered under section 44AD)
On or before 15 June
15% of the Advance Tax
On or before 15 September
45% of the Advance Tax
On or before 15 December
75% of the Advance Tax
On or before 15 March
100% of the Advance Tax
Advance Tax Late Payment and Interest
If advance tax paid by you is less than 90% of the assessed tax, then you will be charged an interest of 1% every month under Section 234B of the Income Tax Act. The interest is computed as 1% interest on the defaulted amount for every month until the tax is paid off completely. The same interest penalty will be applicable if you don’t pay by the second or third deadline.
Under Section 234C of the Income Tax Act, if you do not pay your advance tax installment on time, then you will be charged an interest rate of 1%.
Exemption in Advance Tax Payments
- Senior citizens aged 60 years and above are exempted from paying the advance tax.
- Salaried individuals falling under TDS net are exempted from paying the advance tax. However, any earnings from sources such as interest, capital gains, rent and other non-salary income will attract advance tax.
- If TDS deducted is more than the tax payable for the year, then one does not have to pay the advance tax.
Benefits of Paying Advance Tax
- Advance tax helps in reducing stress of taxpayers. By paying tax in advance, taxpayers do not have to worry about money shortage or tax payments at the last moment.
- It speeds up the tax collection process.
- It increases government funds as the government can earn an interest on the collected amount.
- Advance tax payment saves people from defaulting on their tax payments.
- It helps businesses in managing their finances well and provides an idea of the income they have earned during the year.
Refund in Advance Tax Payment
At the end of the year, if the Income Tax Department finds out that you have paid more tax than you should have paid, then it will refund the excess amount. Taxpayers can claim refund by filling and submitting Form 30. They have to make the claim within a period of one year from the last year of the assessment year.
FAQ's On Advance Tax Payment
If you are accruing income in excess of Rs.10,000 will be required to pay advance tax.
In case you miss the deadline of paying your fourth installment on 15 March, you can make the payment by 31 March.
If the advance tax paid is more than the total tax liability, the extra amount will be refunded. If the advance amount is more than 10% of the tax liability, then an interest of 6% p.a. will be paid by the IT Department.
Yes, any tax paid till 31 March will be considered as Advance Tax payment.