Advance tax is the income tax which is paid by the taxpayer in advance instead of making a lump sum payment at the end of the financial year.
It is basically the tax which you pay as you earn. The taxpayer has to pay the amount in instalments as per the due date given by the income tax department.
Who is Liable to Pay Advance Tax?
- Taxpayers who owe more than Rs. 10,000 in taxes, after adjusting TDS, in a fiscal year are required to pay advance tax.
- This rule applies to all categories of taxpayers, including freelancers, professionals, salaried individuals, and senior citizens.
- Senior citizens who are more than 60 years old and do not own an enterprise are exempt from paying advance tax.
- For taxpayers who choose a presumptive tax regime under Section 44AD for businesses.
- They are supposed to pay the full advance tax liability in a single payment on or before 15 March. Nevertheless, they can also pay their tax liabilities by 31 March.
- Under the presumptive tax regime under Section 44ADA.
- Independent professionals like architects, doctors, lawyers, consultants, etc., have to pay the full advance tax liability in a single payment either on or before 15 March.
- They also have the option to pay the entire amount by 31 March.
The following tables provide a comprehensive understanding of the due dates and liability of advance tax for various types of taxpayers.
|
Due date of Tax Installments |
Amount of Tax Payable |
|
On or before 15th of June |
15% |
|
On or before 15th of September |
45% |
|
On or before 15th of December |
75% |
|
On or before 15th of March |
100% |
Advance Tax Late Payment and Interest
Penalty for missing advance tax payment due date are as follows:
- 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 instalment on time, then you will be charged an interest rate of 1%.
Below are the particulars in case of delay in payment of advance tax will attract interest under 234C:
|
Particulars |
Rate of Interest |
Period of Interest |
Amount on which Interest calculated |
|
If Advance Tax paid on or before 15 June is less than 15% |
1% Per month |
3 Months |
15% of Amount ( – ) tax paid before 15 June |
|
If Advance Tax paid on or before 15 September is less than 45% |
1% Per month |
3 Months |
45% of Amount ( – ) tax paid before 15 September |
|
If Advance Tax paid on or before 15 December is less than 75% |
1% Per month |
3 Months |
75% of Amount ( – ) tax paid before 15 December |
|
If Advance Tax paid on or before 15 March is less than 100% |
1% Per month |
1 Months |
100% of Amount ( – ) tax paid before 15 March |
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.