A Beginner's Guide to Understanding Advance Tax in India

Advance income tax is also referred to as the pay tax as you earn scheme. The advanced tax is payable if the tax liability exceeds Rs. 10,000 in a financial year. This tax must be paid in the same fiscal as the financial year during which the income is received. You can use an income tax calculator to easily calculate how much tax you are liable to pay for the applicable financial year.

Currently online advance tax can be paid through the tax payment challans at banks which are authorized by the department of income tax to collect advance tax. An alternative method for advance income tax payment is by way of paying it through the income tax department's online tax payment website.

Below are some key categories of tax payers in India who are liable to pay advance tax on their income:

The benefits of advanced tax payment are as follows:

You can easily calculate the amount of advanced tax that you will have to pay with the help of the below-mentioned steps and the pointers given below:

 Step 1:Estimate the amount of income you are liable to earn during the applicable financial year. You advanced tax calculation would be based on your inputs for key income sources such as:

1.Income from interest earned from a savings account and  fixed deposits

2.Income from minors (If added to that of a taxpayer)

3.Rental income

4.Capital gains

5.Any other form of income

Self-employed business and professional companies or entities need to clear the minimum percentage of advance tax liabilities as per the due dates mentioned below:

• At least 30 per cent of the tax liability by the 15th of September of a financial year
• It ensures efficient and speedy process of tax collection for the tax authorities.
• At least 60 per cent of the tax liability by the 15th of December of a financial year
• 100 per cent of the tax liability by the 15th of March of a financial year

It helps businesses manage their finances better and provides a clearer idea regarding income earned and total tax liability for the financial year.

The inability to pay advanced tax can lead to the imposition of penalties interest by the government. The individuals who do not need to pay an interest u/s 234B and/or 234C of the Income Tax Act, 1961.

Section 234B is applicable if the advance tax paid is lower than 90% of the total tax liability at the end of the applicable fiscal year. The interest charges in this case will start to accrue from the start of the applicable assessment year i.e. from April 1 onwards.

Section 234C is applicable if advance tax paid is lower than the computed amount for specific due dates or no advance tax payment has been made as per the applicable schedule.

Under these sections, interest on the unpaid advance tax liability is charged at 1% per month of the due amount. For example, if your outstanding tax liability is Rs. 15,000 for a period of 3 months, the penal interest you will need to pay to tax authorities will be Rs. 450. So, your total outstanding tax payable will be Rs. 15,450 at the end of 3 months.

Advance Tax payments need to be made using Challan no. ITNS 280. The key details that need to be filled out in Challan No. ITNS 280 are as follows:

•  PAN details:Fill the PAN details carefully, or else the tax may get deposited in someone else's name.
•  Year of assessment: Select the right year of assessment for which the tax must be paid as advance tax is payable for the upcoming assessment year, not the current AY.
•  Selecting the payment type: The taxpayer must select the type of payment in the form. If tax is being paid for the very same financial year, based on the estimate of income, it will be called as advanced tax. If the tax is being paid by the end of a financial year, it will refer to as a self-assessment tax.

After the completion of payment, a challan identification number is provided. You are needed to keep a note of the same and use the applicable TDS challan identification number when filing your income tax return. The challan identification number is used to verify that the IT department has received the payment made with ITNS 280 at the time of ITR submission.

• Senior citizens including self-employed individuals aged 60 years and above are exempt from advance tax payment. The salaried individuals are also exempt from paying advanced tax as employers are required to deduct TDS from salary every month. However, even for salaried taxpayers, earnings from income sources such as Fixed Deposit interest, rent, capital gains and other non-salary income will attract advance tax.
• If the TDS deducted is higher than the payable tax for that particular year, in that case, one does not have to pay advance tax and you might even be eligible for TDS refund .
• Advance tax online payments benefit the government and an individual or organization paying it. From the perspective of the government, it provides a continuous income flow throughout the year.
• From the perspective of an organization or an individual, it reduces the burden of paying taxes as a  lump sum at the end of the fiscal. While simultaneously reducing the risk of missed tax payments.