Advance Tax

Did you file your income tax returns on time? Great! But it is not all. Now you need to clear your advance tax!

What is Advance Tax?

Advance tax is paid by the assessee when he starts earning. TDS or tax deducted at source is one of the most familiar types of advance tax. According to the income tax department of India, any taxpayer or employee whose tax liabilities for fiscal is Rs 10,000 or more has to pay the advance tax.

In short, the advance tax also recalled as pay as start earn tax is the income tax that requires to be paid in parts or installments during a financial year instead of paying the total amount at the end of the financial year.

However, the senior citizens who are Indian resident and don’t have income from any profession or business, do not have to pay the advance tax.

Who are liable to pay advance tax?

Basically, all the salaried employees and professionals or people running a proprietary business, whether he/she is a married couple, landlord, family, or business is liable to pay advance tax. Assesses can generally pay their advance tax in four installments in a relative financial year. Further, an individual who had opted for the presumptive taxation scheme has to mandatorily pay his/her advance tax before March 15 of the previous financial year.

In case an assessee is unable to pay a required percentage of his advance tax in a quarter, he/she would be charged 1% interest on his pending amount till the next quarter. At the end of a financial year, all the due amounts are calculated as per the provisions of Section 234C stated under the income tax Act.

Additionally, an individual needs to pay interest as per the provisions of section 234B if he/she pays less than 90 percent of his advance tax by the end of the FY. Interest is calculated and is charged at the rate of 1 percent per month from April 1 of each assessment year till the end date of payment.

What are the due dates to pay advance tax?

Corporate or individuals can pay their advance tax through e-payments that are also mandatory for those whose accounts are audited under Section 44AB stated under the income tax act.

All the eligible assesses have to pay advance tax in below-given dates:

  • By the end of June 15: Assesses has to pay up to 15% of his tax liability
  • By the end of September 15: Assesses has to pay up to 45% of his tax liability
  • By the end of December 15: Assesses has to pay up to 75% of his tax liability
  • By the end of March 15: Assesses has to pay up to 100% of his tax liability

Is it beneficial to pay advance tax?

Paying taxes on time is not only beneficial for the country as well as for the taxpayer too.

Let me explain with you an example. Consider living in a building where you don’t pay the utility bills. What will happen? You won’t get the facilities and services, and one day, the building would also get ruined due to poor maintenance. Similar is your nation. If you pay taxes on time, the nation will get revenues to grow as well as the citizens would grow, but if you don’t pay your taxes, it’s pretty sure the nation has to face poor economic conditions.

Advance taxes are also a type of mandatory taxes paid in installments. Here are its benefits:

  1. Installment payments: Advance tax are paid in 4 installments, which means you don’t have to carry the burden of total lump sum payment at the end of the financial year.
  2. Save interest: A taxpayer can easily save 5% interest on his total tax amount as per section 234C, and some additional interest amount under Section 234B i.e., charged 1 percent per month.
  3. Nation-building: You can actually help in nation building by paying your proper taxes on time. It is considered as the source of revenue for the Indian government.

Short points to be considered about advance tax:

  1. Advance taxes are applicable to all taxpayers, freelancers, salaried employees, and businessmen. However, the senior citizens above 60 yrs don’t have to pay it as they don’t have any business income.
  2. If the total tax liability of an individual exceeds Rs 10,000 in a relative financial year, then he/she is liable to pay advance tax.
  3. For the individual employees whose salary is their sole income, advance tax is paid as TDS (tax deducted at source), which is automatically deducted by the employer while crediting the salary to the employee.
  4. It is paid in four installments, and if the taxpayer does not pay tax on time, he has to pay penalties as the interest on his tax.

So, this was all about the Advance tax. I hope you understood how beneficial it is.