If the Income Tax Liability of any taxpayer is more than Rs. 10,000 in a financial year, then he is liable to pay such tax in installments during the year itself rather than paying this tax at the end of the year. This tax which is payable during the year is called “Advance Tax” or “pay as you earn tax” as the tax is liable to be paid at the time the income is earned i.e. during the year itself rather than paying this tax at the end of the year.
Advance Tax receipts help the Govt. to receive a constant flow of tax receipts throughout the year so that the Govt can incur its expenses timely rather than receiving all tax payments at the end of the year. Advance Tax is liable to be paid by all assesses like Salaried, Self Employed, Businessman etc. before the filing of Income Tax Return. An Income Tax Return cannot be filed till the income tax is fully paid.
For Individuals with Salary as the sole source of income, Advance Tax would be taken care of by the TDS deducted by the employer at the time of payment of salaries as reflected in Form 16 and thus there would hardly be any Advance Tax payable. Senior Citizens not having any Business Income are also exempted from the payment of Advance Tax (Introduced by Budget 2012)
For all taxpayers earning income from any source other than salary, Advance Tax is payable in installments as explained below.
What is the due date for Payment of Advance Tax?
| Due Date of Installment | Amount Payable |
| On or before 15th June | 15% of the Advance Tax |
| On or before 15th Sep | 45% of the Advance Tax |
| On or before 15th Dec | 75% of the Advance Tax |
| On or before 15th Mar | 100% of the Advance Tax |
Computing the exact advance tax liability sometimes gets very difficult and therefore the Income Tax Dept has released an Income Tax Calculator which is free to use by everyone. A demo tutorial video of the Advance Tax Calculator is shared below:
Earlier the percentage of Advance Tax to be paid was different for Companies and other than Companies. However, Budget 2016 has standardised the rates for both companies and asseesses other than companies.
The above mentioned schedule would not apply to those taxpayers who have opted for the Presumptive Scheme of Taxation under Section 44AD or Section 44ADA. For taxpayers opting for this scheme, they would not be required to comply with the above mentioned schedule. The only advance tax due date deadline applicable to such taxpayers would be 15th March and such taxpayers would be required to pay 100% of their Tax liability by 15th March.
Payment of Advance Income Tax is to be made through Challan No. 280 by selecting Advance Tax (100) as the type of payment as shown below:-
How to calculate of Advance Tax?
Advance Tax is calculated by estimating the current year income and then applying the tax rates as per the Income Tax Slabs in force. The Advance Tax shall be computed as under:
| Income under the 5 Heads of Income | xxx | |
| (Less) | Brought Forward Losses and Allowances | xxx |
| (=) | Gross Total Income | xxx |
| (Less) | Chapter VI-A Deductions | xxx |
| (=) | Estimated Total Income | xxx |
| Income Tax on Estimated Total Income | xxx | |
| (Add) | Surcharge (if any) on the above Estimated Income | xxx |
| (=) | Total Tax Payable | xxx |
| (Less) | Relief under section 89 | xxx |
| (=) | Tax Liability | xxx |
| (Add) | 2% Education Cess | xxx |
| (Add) | 1% SHEC | xxx |
| (=) | Total Tax Liability | xxx |
| (Less) | Relief of tax u/s 90,90A,91 | xxx |
| (Less) | MAT Credit u/s 115JAA | xxx |
| (Less) | TDS as shown in Form 16/Form 16A and reflected in Form 26AS | xxx |
| (=) | Advance Tax Liability | xxx |
Payment of Advance Tax in case of Capital Gains
Although Advance Tax is liable to be paid on all incomes including Capital Gains, it is practically not possible to estimate the Capital Gains which may arise in an year. Therefore, in such cases, it is provided that if any such income arises after the due date of any installment, then, the entire amount of tax payable on such capital gain (after claiming exemption under section 54) shall be paid in remaining installments of Capital Gains which are due. If the entire amount of tax payable is so paid, then no interest on late payment will be levied.
What is the Interest on Late Payment of Advance Tax?
Interest on late payment of Advance Tax is applicable as follows
- Interest under section 234C – Interest @ 1% per month is payable if the tax is not paid as per the above schedule i.e. for Deferment in Installments of Advance Tax
- Interest under section 234B – Interest @ 1% is payable if 90% of the tax is not paid before the end of the financial year i.e. for Default in Payment of Advance Tax
For computing Interest u/s 234A/B/C and any other Interest, Income Tax shall be rounded off to nearest hundred and fraction of hundred shall be ignored
Interest under section 234C for Deferment of Payment of Tax
Interest under section 234C is liable to be paid @ 1% per month if
| (a) | Advance Tax paid on or before 15th Sept | < | 30% of the Tax Due on Returned Income |
| OR | |||
| (b) | Advance Tax paid on or before 15th Dec | < | 60% of the Tax Due on Returned Income |
| OR | |||
| (c) | Advance Tax paid on or before 15th Mar | < | Tax Due on Returned Income |
| OR | |||
| (d) | No Tax has been paid by the Assessee |
Note: Tax Due on Returned Income means the Tax on Total Income declared in
| Income Tax Return | xxx | |
| (Less) | Relief of Tax u/s 90 | xxx |
| (Less) | Relief of Tax u/s 90A | xxx |
| (Less) | Relief of Tax u/s 91 | xxx |
| (Less) | MAT Credit u/s 115JAA | xxx |
| (Less) | TDS Paid | xxx |
| (=) | Tax due on Returned Income | xxx |
No Interest would be levied in case the assessee is having Income under head “Profits and Gains of Business or Profession” for the first time.
Computation of Interest for Late Payment of Advance Tax u/s 234C
| (a) | Rate | 1% per month simple interest |
| Period | 9 Months | |
| Amount | 15% of the “Tax due on Returned Income” | |
| (Less) Advance Tax paid on or before 15th June |
| (b) | Rate | 1% per month simple interest |
| Period | 6 Months | |
| Amount | 45% of the Amount Due on Returned Income | |
| (Less) Advance Tax Paid on or before 15th Sept |
| (c) | Rate | 1% per month simple interest |
| Period | 3 Months | |
| Amount | 75% of the Amount Due on Returned Income | |
| (Less) Advance Tax Paid on or before 15th Dec |
| (d) | Rate | 1% per month simple interest |
| Period | 3 Months | |
| Amount | Tax Due on Returned Income | |
| (Less) Advance Tax paid on or before 15th March |
Interest under section 234B for Default in Payment of Tax
Interest @ 1% per month is payable if
| (a) | Advance Tax Paid by the Assessee during the Previous Year | < | 90% of the Assessed Tax |
| OR | |||
| (b) | No Advance Tax is paid by the Assessee |
Note: Assessed Tax means
| Tax determined u/s 143(1) or on Assessment u/s 143(3)/144/147/153A | xxx | |
| (Less) | Relief of Tax u/s 90 | xxx |
| (Less) | Relief of Tax u/s 90A | xxx |
| (Less) | Relief of Tax u/s 91 | xxx |
| (Less) | MAT Credit u/s 115JAA | xxx |
| (Less) | TDS/TCS | xxx |
| (=) | Assessed Tax | xxx |
Other Relevant Points regarding Advance Tax
- In case Advance Tax paid by the Assessee is more than his actual Income Tax Liability, he can claim Refund of Income Tax by furnishing the details of tax deposited in the Income Tax Return.
- If the Tax is paid in the same year in which the Income is being earned – it is called Advance Tax. However, in case the advance tax is not paid on time and is paid in the next financial year – it is called Self Assessment Tax.
- Online Payment of taxes is compulsary for all companies as well as for taxpayers liable to tax audit. All other taxpayers can either deposit the tax online or physically through bank branches through Challan No. 280.
- After making the payment of 1st or 2nd or 3rd installment of advance tax (as the case may be), if there is a change in the tax liability, then the taxpayer can revise the quantum of advance tax in the remaining installments and pay the tax as per revised estimates.
- To help taxpayers properly compute their Advance Tax liability and the interest applicable thereon, the Income Tax Dept has also prepared an online advance tax calculator which can be accessed through this link – http://www.incometaxindia.gov.in/pages/tools/advance-tax-calculator.aspx
- The advance tax collections also help the Govt in ascertaining the growth of the economy as in increase in the Advance Tax numbers indicates that the economy is growing and vice-versa.
