The requirement of advance tax represents an essential tax requirement for conducting payments in smaller portions during the fiscal year instead of waiting to pay everything at fiscal year-end. Pursuant to Income Tax Act requirements you must make advance tax payments when your estimated financial year tax obligation exceeds ₹10,000.
The system enables government revenue sustenance through its ongoing cash flow maintenance without taxes accumulating at year’s end. Understanding how to calculate, pay, and meet due dates can make the process seamless and avoid unnecessary penalties.
Who needs to pay advance tax?
Advance tax applies to a large variety of taxpayers including those who are salaried, have other income sources and so on. Even senior citizens who do not have business income are exempted from this requirement. All taxpayers who gain income through capital gains and interest as well as rent and other sources besides their salary must check their tax liabilities to determine their need for advance tax payments.
Businesses and professionals following Sections 44AD or 44ADA are required to pay their entire advance tax amount as a single installment to reach the Revenue Department by March 15 during the financial year. The standard payment schedule must be followed by individuals whose incomes do not use salary as the primary source.
How to calculate advance tax?
Calculating advance tax involves estimating your total taxable income and computing tax liability accordingly. Here’s how you can do it step by step:
- Estimate total income: All income streams should be evaluated for computing total revenue such as salaries and business profits and rental income and interest and capital gains.
- Deduct eligible deductions: Apply deductions under Sections 80C, 80D, and other applicable provisions to arrive at net taxable income.
- Compute tax liability: Use the income tax slab rates to determine the total tax payable.
- Subtract TDS (Tax Deducted at Source): Check your tax liability by subtracting the TDS that your employer as well as financial institutions has already deducted.
- Determine advance tax due: Funds exceeding ₹10,000 in tax obligation should be paid as advance tax according to predefined dates.
Using an online advance tax calculator can simplify the process, ensuring accuracy and helping you avoid penalties.
Advance tax payment due dates
The Income Tax Department has set specific deadlines for advance tax payments to be made in installments throughout the year. For individuals and businesses following the regular taxation system, the due dates are:
- 15% of the total tax liability by June 15
- 45% of the total tax liability by September 15
- 75% of the total tax liability by December 15
- 100% of the total tax liability by March 15
Delaying your advance tax payments leads to additional interest expenses according to Sections 234B and 234C of the Income Tax Act until the entire tax amount is paid by March 15.
How to pay advance tax?
Online payments of advance tax happen through the official Income Tax Department portal or authorized bank locations. Here’s how you can do it:
1. You need to access the Income Tax e-filing website where you must choose the ‘e-Pay Tax’ option.
2. Use Challan 280 because it exists especially for users who make self-assessment tax payments.
3. Fill in the necessary details, including PAN, assessment year, tax amount, and payment method.
4. Users can make their payment through net banking and debit cards and UPI and authorized bank systems.
5. Save the payment receipt (Challan Number) for future reference and tax filing.
The timely payment of advance tax eliminates both interest penalties along with ensuring proper tax regulations compliance.
Consequences of non-payment or late payment
Late payment of advance tax will lead to enforcement penalties according to the Income Tax Act. Section 234B of the Income Tax Act requires you to pay interest when you fail to fulfill the 90% tax liability due before the end of the year. A delayed payment of installment dues subjects taxpayers to an interest charge as per Section 234C.
The tax authorities scrutinize all remaining tax debt during assessment thus potentially triggering notices or audits for the taxpayer. The timely payment of advance tax benefits both tax compliance and reduces unwanted financial strain.
Exemptions and special cases
Certain individuals and businesses are exempt from advance tax payments:
- Senior citizens with ages above 60 years and no business revenues do not have to make advance tax payments.
- Individuals whose total tax liability is below ₹10,000 after considering TDS deductions do not need to make advance tax payments.
People who generate their income from agricultural activities do not need to pay advance tax since agricultural income is completely tax exempt under Indian tax rules.
Conclusion
Knowledge of advance tax obligations can be instrumental in managing taxes efficiently and save from penalties. Whether you are a salaried employee with many sources of income, a freelancer, or a business owner, prioritizing timely payments can eliminate your tax burden and remain compliant.
If you want to learn more about tax compliance, you may consider enrollment in a tax practitioner course in India online to understand tax laws and policies better.
Super 20 Training Institute offers the comprehensive courses covered by the industry expert, for those open to investing a little, to gain in depth expertise in taxation and finance. With their training program, you will get practical knowledge to learn the taxation concepts in an easy way.