Advance tax is a critical component of the Indian taxation system, designed to ensure the consistent collection of taxes throughout the financial year. It requires taxpayers to estimate and pay their income tax in instalments rather than as a lump sum at the year-end. This comprehensive guide aims to shed light on the nuances of Advance Tax, its implications, who is liable to pay it, how to calculate it, and the penalty for non-payment. Additionally, we will explore the exemption granted to senior citizens from advance tax payments.

The Basics of Advance Tax

Advance tax, often referred to as “pay as you earn” tax, is a system that mandates taxpayers to pay their income tax in instalments during the financial year instead of a single payment at the end of the year. This system promotes regular and steady revenue collection for the government, preventing taxpayers from facing a massive tax liability when filing their tax returns.

Who Is Liable to Pay Advance Tax?

Advance tax applies to many individuals, including salaried individuals, freelancers, and businesses. The primary criterion for determining liability is whether the taxpayer’s total tax liability for the financial year exceeds INR 10,000. If it does, the taxpayer is required to pay advance tax. However, there are exceptions to this rule.

Exemption for Senior Citizens

Senior citizens in India, individuals aged 60 or above, are exempted from the requirement to Pay Advance Tax, provided they do not earn income classified under the head “business or profession.” This exemption is a significant relief for elderly citizens who primarily rely on fixed and regular sources of income, such as pensions, interest, or rent.

Presumptive Income for Businesses and Professionals

Certain taxpayers, including businesses and professionals, may opt for the presumptive taxation scheme under Section 44AD and Section 44ADA of the Income Tax Act. Under this scheme, they must pay their entire advance tax liability in one instalment on or before 15th March, with an option to pay their total tax liabilities by 31st March.

Calculating Advance Income Tax Payment

Calculating advance income tax payments involves a series of steps. To help you better understand this process, let’s break it down into a simplified example:

Step 1: Estimate Your Income

Begin by estimating the income you expect to earn during the financial year. This includes various income sources, such as interest income, professional income, capital gains, rent, and more. Total these sources to determine your estimated income.

Step 2: Estimate Expenses

Next, estimate any deductible expenses related to your estimated income. Consider deductions under Chapter VIA, which cover various tax-saving investments and expenses.

Step 3: Calculate Total Tax Liability

Calculate your total tax liability based on the estimated income and expenses. Consider the applicable slab rate, tax rebates under Section 87A, and any TDS (Tax Deduction at Source) that other taxpayers may deduct from your income.

Step 4: Calculate Advance Tax Payment

Calculate the advance tax payment once you have determined your total tax liability. This involves estimating the amount you must pay in instalments based on due dates.

Let’s illustrate this process with an example:

Mr. Ajay’s Example:

• Estimated Gross Receipts for the financial year: INR 22,00,000
• Estimated Expenses related to income earned: INR 10,00,000
• Receipts on which TDS is expected to be deducted: INR 4,00,000
• Interest Income: INR 50,000

Here’s the calculation:

Advance Tax Payment Installments and Due Dates

Once you’ve calculated your advance tax liability, making timely payments is essential to avoid interest and penalties. The due dates for advance tax instalments are as follows:

Penalty for Non-Payment of Advance Tax

Failure to pay advance tax on time results in penalties, specifically under Section 234C of the Income Tax Act. The interest is charged at a rate of 1% per month from the due date of each instalment until the actual payment date. The interest calculation varies depending on when the advance tax payments are made.

For taxpayers who have not opted for presumptive income, the calculation of interest is as follows:

• If Advance Tax paid on or before 15th June is less than 15% of the Net Amount*: 1% per month for 3 months on (15% of Net Amount* – tax deposited before 15th June)
• If the Advance Tax paid on or before 15th September is less than 45% of Net the Amount*: 1% per month for 3 months on (45% of Net Amount* – tax deposited before 15th September)
• If Advance Tax paid on or before 15th December is less than 75% of Net Amount*: 1% per month for 3 months on (75% of Net Amount* – tax deposited before 15th December)
• If Advance Tax paid on or before 15th March is less than 100% of Net Amount*: 1% per month on (100% of Net Amount* – tax deposited before 15th March)

*Net Amount = Tax liability on total income chargeable to tax – tax paid

How to Pay Advance Tax Online?

You can conveniently pay advance tax online through the National Securities Depository Ltd (NSDL) website. Here’s a step-by-step guide:

1. Visit the Tax Information Network website at https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp.
2. Click on ‘Proceed’ under ‘Challan No./ITNS 280’ under ‘Non TDS/ TCS’.
3. Enter the necessary information on the screen to generate the challan. Ensure that you select the appropriate options:

• For Companies: select ‘(0020) Corporation Tax (Companies)’

• For Other than Companies: select ‘(0021) Income Tax (Other than Companies)’

• Type of Payment: select ‘(100) Advance Tax’

• Mode of Payment: choose net banking or debit card and select the ‘Bank Name’ from the dropdown menu.

1. Enter your Permanent Account Number (PAN) and the Assessment Year carefully.
2. Provide your address details, including city, district, state, PIN Code, email ID, and mobile number.
3. Enter the captcha code displayed on the screen.
4. Click on ‘Proceed,’ and you will be redirected to the bank’s website to complete the transaction.
5. After completing the payment, you will receive a bank receipt containing the BSR code and challan serial number. It’s crucial to save the challan copy for future reference.

Claiming Advance Tax Paid While Filing ITR

When filing your income tax return (ITR), you can claim the advance tax paid. Whether you file your ITR online or offline, the process is straightforward.

Online Filing of ITR

When you opt for online tax filing and use the ‘Prepare and Submit’ option, your transactions will be pre-filed for you. The income tax authorities have access to the details of transactions made by you or on your behalf, which are automatically populated in your ITR. This includes information on advance tax payments.

Hence, you only need to review the pre-filled information and proceed with filing your ITR online.

Offline Filing of ITR

If you prefer to file your ITR offline using the ‘Download and Prepare’ option, you must manually enter the details, including advance tax payment information. Here are the steps:

1. Go to the third tab labelled ‘TDS’ and scroll down to item 21.
2. Under item 21, ‘Details of the Advance tax and Self Assessment Tax payments,’ enter the following details from your challan:

• BSR Code

• Date of Deposit

• Serial Number of Challan

• Tax paid

1. Proceed to the fourth tab of the utility, ‘Tax Paid and Verification.’
2. Enter the amount of tax paid under ‘Total Advance Tax Paid.’ Ensure that the details filled under ‘Item-21’ match the ‘Total Advance Tax Paid.’

Checking Advance Tax Payment Status

You can easily check the status of your advance tax payment through Form 26AS or by visiting the NSDL website.

Form 26AS

1. Log in to your account on the incometaxindiaefiling website.
2. Go to ‘My Account’ and select ‘View Form 26AS tax Credit’ from the dropdown menu.
3. Click on ‘View Form 26AS.’
4. You will be prompted for confirmation to be redirected to the Traces website or the TDS CPC website. This redirection is a necessary and safe step, as the Government of India regulates the Traces website.
5. Select the box on the screen and click the ‘proceed’ button.
6. You will find an option at the bottom of the page to ‘Click View Tax Credit (Form 26AS) to view your Form 26AS.’ Click on this option.
7. You will land on the ‘View Tax Credit (Form 26AS)’ page, where you can view Form 26AS or download a PDF file.
8. Form 26AS provides detailed information about TDS deducted and advance tax payments made.

NSDL Website

1. Visit the NSDL website.
2. Select ‘CIN based View.’
3. Enter the required details, which can be found on the bank receipt you received while making the payment:

• BSR code of the collecting bank

• Challan Tender Date or Challan Deposit Date

• Challan Serial Number

• Amount

1. Enter the captcha code and click ‘View’ to check your payment status.

Exemptions and Refunds of Advance Tax

Having explored the process of paying advance tax online, it’s important to understand the exemptions associated with advance tax payments:

1. Senior Citizen Exemption: Individuals above 60 are granted an exemption from paying advance tax. This exemption aims to provide relief to elderly citizens who may rely on fixed and regular sources of income, such as pensions, interest, or rent.
2. TDS Exceeds Tax Payable: If the Tax Deducted at Source (TDS) deducted during the year exceeds the tax payable for that year, there is no requirement to pay advance tax. This ensures that individuals who have already had a significant portion of their tax liability deducted at source are not burdened with additional advance tax payments.
3. Salaried Individuals Under TDS: Salaried individuals who fall under the TDS net are exempt from paying advance tax on their salary income. However, any earnings from sources such as interest, rent, capital gains, and other non-salary income are subject to advance tax.

Refund

In cases where taxpayers have paid more tax than necessary, the Income Tax Department offers a refund of the excess amount at the end of the financial year. To claim this refund, taxpayers can follow these steps:

• Complete and submit Form 30 for the refund application.
• Ensure that the refund claim is submitted within one year of the end of the assessment year.

Conclusion

Advance tax is a fundamental aspect of India’s taxation system, ensuring regular tax payments by individuals and businesses throughout the financial year. Taxpayers must understand their liability, calculate their advance tax correctly, make timely payments, and claim the payments while filing income tax returns. This guide provides comprehensive insights into the advanced tax system, helping taxpayers navigate the process easily and comply.

In summary, advance tax is not just a financial obligation; it is a significant contributor to the smooth functioning of India’s revenue collection mechanism. Taxpayers can contribute to the country’s economic stability and growth by adhering to the advanced tax rules and deadlines.

Related Services

• Income Tax Return Filing Online
• TDS Return Filing Online

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