System of Advance Tax in India
Created on 20 Aug 2018
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Updated on 11 Sep 2022
Were you aware about the fact that the taxes that we usually paid at the end of every financial year, could also be paid in installments throughout the year?
If your Income Tax Liability exceeds Rs.10,000, you have to pay your income tax in installments during the year(as income is earned). This concept of paying as you earn is termed as "Advance Tax".
Who needs to pay Advance Tax?
Advance tax applies to all tax payers- salaried, freelancers and businesses. Salaried individuals need not pay advance tax if their only source of income is salary as the employer deducts the tax at source (TDS). However, they would need to file Advance tax if they have other sources of income increasing their liability to more than Rs 10,000.
Who are exempted from paying Advance Tax?
Senior citizens, taxpayers who are 60 years or older, and do not run a business are exempt from paying advance tax. Additionally, taxpayers who opt for presumptive schemes are exempted from paying advance tax. Taxpayers who opt for presumptive schemes have to pay whole amount of their advance tax in one instalment on or before 15th March.
Why is it important to pay Advance Tax?
It is the responsibility of the tax payer to estimate the income and then calculate the estimated tax to assess whether they need to pay the tax. It is not possible for the tax authorities to estimate the income of a person till it is earned. So, the onus is on the individual to make the payment herself.
The failure to do so will attract a financial hit in the form of an interest cost which is 1% per month on the defaulted amount till the tax is completely paid off. Since this can be a large figure it is better to pay the advance tax as per the requirement.
What are the benefits of paying Advance Tax?
1. Speeds up the tax collection process.
2. Increases Government funds as the Government can earn an interest on the collected amount.
3. Saves people from defaulting on their tax payments.
4. Helps businesses in managing their finances well as they get an idea of their income.
How to determine whether you are liable to pay Advance Tax?
You can calculate advance tax on your own and determine if you have to pay advance tax by following few steps given below;
Step 1: Determine the income you receive besides your salary.
Step 2: Deduct your foreseeable expenses from the income for example travel expenses, rent to be paid, internet and phone costs.
Step 3: Add up other income, to the income determined in above steps, which you might receive in the form of rent, interest etc. and deduct the TDS from your salaried income.
Step 4: If the tax due on the income calculated in Step 3 exceeds Rs 10,000 then you are eligible to pay advanced tax.
How to pay Advanced Tax?
Advance tax can either be paid through tax payment challans at bank branches authorised by the Income Tax Department or by paying it online through the Income Tax Department or the National Securities Depository.
What are the important dates for payment of Advanced Tax?
Following is the schedule mentioning due dates for payment of advanced tax for both individual and corporate taxpayers.
Amount of Advance Tax payable
On or before 15th June
On or before 15th September
On or before 15th December
On or before 15th March
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