Advance tax is the income tax that is paid in advance instead of a lump sum payment at the end of the fiscal year. It is commonly called the ‘pay as you earn’ tax. The payments for these taxes have to be made in installments depending on the due dates that the income tax department has provided.
Advance tax is an efficient way of making tax payments for only those individuals who do not have monthly salaries as their source of income. In the case of salaried individuals, the tax is deducted at source, so they do not have to pay advance tax. Money earned through different income sources is applicable for advance tax. This tax can be paid through other banks or online. Read ahead to know how you can pay advance tax, who has to pay the tax, and what interest charges are paid for short payment of advance tax.
How to Pay Advance Tax Online in India?
The Income Tax Department of India has made the process of making advance tax payments online easy. They have set up an online facility, and anyone who wishes to make the advance tax payment can simply visit the official website ‘www.tin-nsdl.com’ and follow the steps listed below.
- On the IT Department’s website, select the e-payment facility.
- To pay the advance tax, select the correct form. Individuals should choose ITNS 280.
- Choose the correct code for advance tax; the applicable code number is 100.
- Fill out your details, such as PAN, name, number, address, email address, etc.
- The net banking page or debit card payment gateway will be visible once you click on Proceed.
- Pay the amount shown.
- After you make the payment, the next screen will give you the receipt called Challan 280. Save a copy and use it while filing ITR.
Now that the process of paying advance tax online is clear let us understand who should make this payment.
Who Has to Pay Advance Tax?
The eligibility for advance tax is a broad category. If you meet the requirements listed below, you will have to pay advance tax:
- Self-employed individuals like business people, freelancers, and professionals come under this category.
- A Non-Resident Indian (NRI) who generates an income of more than ₹10,000 in India should pay advance tax.
- Investors who have earned an income through different investment options like stocks or fixed deposits.
- Individuals who have earned income from leasing out a property on rent.
- Any individual who has earned money by winning a lottery.
Individuals who meet the criteria listed above should also check the payment dates for advance tax payments. Since the advance tax is paid in installments, it is necessary to keep track of the dates to make the payment calculation simpler.
The following are the due dates for corporate taxpayers and individuals to pay advance tax:
Installment due dates
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Advance tax to be paid
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On or prior to 15th June
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15% of the advance tax payable
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On or prior to 15th September
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45% of the tax, excluding the last installment
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On or prior to 15th December
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75% of the tax, excluding the last installment
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On or before 15th March
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100% of the tax, excluding the last installment
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To calculate advance tax, you must:
- Determine the income you get other than your salary. It is essential you include agreements that may pay out later.
- Remove your expenses from the income. Expenses that are related to work can be deducted, like travel expenses, internet, etc.
- Add up the income which you may receive in rent, earnings through interest, etc. Remove the TDS, which is excluded from your salaried funds.
- If the tax due goes above ₹10,000, then you will need to pay advance tax.
While making tax payments may seem a bit tedious, you can get a better idea of how to go about it with tax savings. The tax savings guide includes well-researched information on topics like how to file taxes online, how insurance policies are tax-friendly instruments, etc. With the help of this guide, your tax filing process can be stress-free and simple.
Advance Tax Due Date for Small Business (Presumptive Tax Scheme)
Small business taxpayers are required to pay their entire advance tax on or before the 31st of March of each year. Depending on how they received their business revenue for the year, the taxes should be calculated at 6% or 8% of that revenue.
Here is an example of how advance tax is calculated for small businesses:
Let us say a small business has received ₹10 lakhs in business revenue for the year. If the business receives the revenue in cash, the advance tax rate will be 6%. So, the advance tax liability for the year will be ₹ 60,000. If the business receives the revenue through other modes, the advance tax rate will be 8%. So, the advance tax liability for the year will be ₹80,000.
The advance tax liability must be paid in four installments, with the first installment due on 15th June, the second one due on 15th September, the third one due on 15th December, and the fourth one due on 31st March.
In this example, the first installment of advance tax would be ₹15,000, the second would be ₹24,000, the third would be ₹32,000, and the fourth installment would be ₹40,000.
Interest Charges on Missed Payment of Advance Tax Installment
Interest charges on short payment of advance tax installments refer to the additional amount that an individual or business may be required to pay if they fail to remit the full amount of their advance tax installment. Advance tax is a system of paying taxes to the government in installments throughout the financial year rather than in one lump sum at the end of the year. It is applicable in countries like India to ensure regular tax collection and avoid a burden on taxpayers.
According to section 234B, interest will be charged at a rate of 1% per month beginning on April 1st of the financial year if the assessee has not paid any advance tax or has paid an amount during the year that is less than 90% of his total advance tax liability. In other words, you will not be required to pay interest if you pay your advance tax by March 31st of the relevant financial year. Here is an example of how interest is charged under Section 234B:
Let us say an assessee has an advance tax liability of ₹100,000 for the financial year 2023-2024. If the assessee does not pay any advance tax, or if the assessee pays less than 90% of the advance tax liability, they will be liable to pay interest at the rate of 1% per month beginning on April 1st, 2023. So, if the assessee does not pay any advance tax, they will be liable to pay interest of ₹1,000 for the month of April. The interest will continue to accrue at the rate of 1% per month until the assessee pays the entire advance tax liability.
In this example, the assessee would be liable to pay a total of ₹12,000 in interest if they did not pay any advance tax for the financial year 2023-2024.
Note that the interest rate under Section 234B is compounded monthly. This means that the interest that is accrued in one month is added to the outstanding amount, and then interest is calculated on the new outstanding amount in the next month.
Refund in Advance Tax Payment
If you have paid more advance tax than you owe, you can claim a refund from the Income Tax Department. The refund process is as follows:
- You must file your income tax return (ITR) by the due date.
- If your ITR filing shows that you have paid more advance tax than you owe, you will be able to claim a refund.
- You will need to submit Form 30 along with your ITR.
- The Income Tax Department will process your refund claim and issue a refund cheque or credit the amount to your bank account.
The interest rate on advance tax refunds is currently 6% per annum. This means that if you are due a refund, you will earn interest on the amount of the refund from the date of payment of the advance tax until the date the refund is processed.
The maximum amount of time it takes to process a refund claim is 6 months. However, in most cases, the refund is processed within 3 months.
To Conclude
An advance tax is paid on income earned through investments, real estate, lottery, etc., by non-salaried individuals. It is advisable to calculate the amount for this tax and also be updated on the dates for making these payments. Paying advance tax online is a simple process in which one can simply visit the official website and fill out the relevant information.
Key Takeaways
- Advance tax is an efficient way to make tax payments for non-salaried individuals.
- The eligibility for advance tax is broad and includes self-employed individuals, NRIs, investors, and others.
- The due dates for advance tax payments are staggered throughout the financial year.
- Interest is charged on short payment of advance tax installments.
- You can claim a refund if you have paid more advance tax than you owe.
FAQS
1
Is advance tax compulsory?
Yes, if your estimated tax liability for the year is ₹10,000 or more, you are required to pay advance tax.
2
Will any tax payable till 31st March be treated as advance tax?
No, only the tax paid by 31st March in a financial year will be treated as advance tax. Any tax paid after 31st March will be considered as self-assessment tax.
3
Is it possible to claim a deduction under Section 80C when estimating income for determining advance tax?
Yes, you can proclaim a deduction under Section 80C of the Income Tax Act when estimating your income for determining the advance tax. However, you will need to pay the tax on the entire amount of your income, including the amount that has been deducted under Section 80C, by the due date.
4
Can I make an advance tax payment at a bank branch?
Yes, you can make an advance tax payment at any bank branch. You will need to fill up a challan and submit it along with the payment.
5
Which Challan is used for advance tax?
The challan used for advance tax is ITNS-280. You can download the challan from the Income Tax Department website.
6
How is advance tax paid in India?
Advance tax can be paid in a number of ways, including online, through a bank branch, or by post. The easiest way to pay advance tax is online. You can pay your advance tax through the e-filing website of the Income Tax Department.
7
What happens if advance tax is not paid?
If you do not pay your advance tax in full or on time, you will be liable to pay interest on the unpaid amount. The interest rate is currently 6% per annum. You may also be penalized by the Income Tax Department.
