All About Advance Tax in India

Advance Income Tax which is also known as the “Pay as you earn” scheme allows individuals who owe income tax on a variety of income sources, such as salaries that exceed Rs. 10,000 in a fiscal year, must pay advance tax. Despite paying the amount in lump sum at the end of the financial year, you must pay advance tax in instalments according to the due dates given by Income Tax Department.

What is Advance Tax Payment? 

Advance tax can be paid at bank branches including, ICICI Bank, Reserve Bank of India, HDFC Bank, Allahabad Bank, State Bank of India, and various others that are recognized by the Income Tax Department of India. You can either pay through payment challans or make online tax payments through the official website of the Income Tax Department. 

Advantages Of Paying Advance Tax

Here are some of the benefits of paying advance tax in India. 

• The process of filing income tax returns is simplified for individuals. Simply, they can pay in advance without worrying about last-minute hassles. 
• It provides access for collecting tax smoothly and fastly to the tax authorities. 
• The government funds increase as they can gain interest on the collected amount. 
• Save taxpayers from being penalized due to the non-payment of tax. 
• It helps businesses manage their funds properly and gives a clear picture of the income earned and total tax liability for the fiscal year. 

Eligibility Criteria for Paying Advance Tax 

Taxpayers who are liable to pay advance tax on their income in India are listed below. 

• Salaried Employees and Freelancers: 

If the tax liability is Rs. 10,000 or more for a particular fiscal year for salaried employees, freelancers, and businesses, they are eligible for paying advance tax. All taxpayers can pay advance tax except those who are paying tax via Tax Deducted at Source (TDS). At present, senior citizens who are above 60 years of age and are not engaged in business are not liable to pay the advance tax. 

• Self-Employed with Presumptive Business or Professional Income: 

Under Section 44D, taxpayers who have chosen the presumptive tax scheme must pay the complete advance tax amount in a single instalment either on the 15th of March of the applicable financial year or before that. 

Self-employed individuals, including architects, lawyers, doctors, and other professionals, may also pay income tax under the presumptive scheme of Section 44AD. Therefore, even if these professionals are not liable to pay TDS rates, they must pay advance income tax on their income. 

• Other Income Received: 

Individuals are eligible to pay income tax in advance if they have gained monetary profit from capital gains on shares, interest earned on fixed deposits, lottery winnings, and rent or other income generated through a property. 

How to Calculate Advance Tax 

Listed below are a few steps to calculate the advance tax payable on the income. 

• Evaluate the income that you may earn during a particular financial year. Some of the key sources include interest received from a savings account or fixed deposits, rental income, capital gains, or any other income sources. 
• Calculate gross taxable income by adding the salary for the applicable financial year to the total salary estimated. You should compute this even if your salary is not applicable to advance tax. 
• Compute the tax payable amount using the income tax slab under which your calculated income falls. 
• According to the applied TDS slab, deduct the tax exemptions for which you are eligible. The balance amount will be considered as the advance tax payable amount that you need to pay for the applicable fiscal year. 

Penalties for Non-Payment of Advance Tax 

Under Section 234B of the Income Tax Act, you will be charged 1% interest every month if the advance tax paid by you is less than 90% of the assessed tax. However, the interest will be computed every month until the complete tax amount is paid by you. If you don’t pay by the second and third extensions, the same penalty will be imposed for the non-payment of the complete tax amount. 

If you fail to pay the advance tax return instalment timely, the interest rate of 1% will be charged as mentioned under Section 234C of the Income Tax Act. 

Documents Required for Advance Tax Payment 

An individual can pay advance tax through Challan No. ITNS 280. Listed below are the details that you need to fill out carefully in Challan No. ITNS 280. 

• PAN Number: It is a mandatory document that gives proof of your residential address. Therefore, while filling out the Challan form, ensure that you fill in all the details of your PAN carefully. 
• Assessment Year: You must choose the right assessment year for which you have to pay the advance tax. It must be the upcoming one, not the current AY. 
• Payment Method: Choose the payment method you prefer in the form. In case, an individual is paying taxes for the current financial year which is computed based on income, then it is called an advance tax payment. However, if you pay tax at the end of a fiscal year, it is considered a self-assessment tax. 

Conclusion 

As previously stated, advance income tax is the taxable amount paid in instalments by tax payers. As the advance income tax payable amount is calculated on the basis of estimated income, the Income Tax Department of India will refund the excess tax amount paid by you. All you need to do is to fill out and submit Form 30 to the respective authorities.

Also read: Income Tax Filing For Freelancers