The concept of Advance Tax in India is one that is relatively unknown to the general public. While most people are aware of the basic concept of taxation, few are familiar with the intricacies of Advance Tax. In this article, we will take an in-depth look at what Advance Tax is, how it works, and why it is so important for businesses and individuals alike.
What is Advance Tax?
Advance Tax, also known as ‘Pay As You Earn’ (PAYE) tax, is a system of taxation in India that requires taxpayers to pay a portion of their estimated tax liability in advance, rather than waiting until the end of the financial year to pay the full amount. This system is primarily designed to ensure that the government has a steady stream of revenue throughout the year, rather than relying on a lump-sum payment at the end of the year.
Under the Indian Income Tax Act, 1961, Advance Tax is payable by all individuals, companies, and firms whose estimated tax liability for the financial year exceeds Rs. 10,000. The liability for Advance Tax arises when the taxpayer’s income is not subject to Tax Deduction at Source (TDS) or the amount of TDS deducted is less than the required amount.
How is Advance Tax calculated?
Advance Tax is calculated based on the taxpayer’s estimated income for the financial year. The estimated income includes income from all sources, including salary, business income, capital gains, and any other income. The taxpayer must estimate their income for the year and pay Advance Tax on a quarterly basis.
Advance Tax Due Dates are as follows
- On or before 15th June – 15% of the estimated tax liability
- On or before 15th September – 45% of the estimated tax liability, less the amount paid in the first installment
- On or before 15th December – 75% of the estimated tax liability, less the amount paid in the first and second installments
- On or before 15th March – 100% of the estimated tax liability, less the amount paid in the first three installments
It is important to note that failure to pay Advance Tax or underpayment of Advance Tax may attract penalty and interest under the Income Tax Act.
Who is required to pay Advance Tax?
As mentioned earlier, Advance Tax is payable by all individuals, companies, and firms whose estimated tax liability for the financial year exceeds Rs. 10,000. However, there are certain categories of taxpayers who are exempt from paying Advance Tax. These include:
- Senior citizens (i.e., individuals who are 60 years or older) who do not have any income from business or profession
- Individuals who are eligible to claim a rebate under Section 87A of the Income Tax Act
- Individuals who have income from salary and have opted for the old tax regime
- Individuals who have income from salary and have total income up to Rs. 5 lakh after claiming all deductions
Why is Advance Tax important?
Advance Tax is an important source of revenue for the government as it ensures a steady stream of income throughout the year. This helps the government in planning its expenditure and meeting its financial obligations.
For taxpayers, Advance Tax helps in avoiding a large tax liability at the end of the year. By paying the tax in advance, taxpayers can manage their cash flow better and avoid any penalty or interest that may be levied for non-payment or underpayment of tax.
How to Pay Advance Tax Online?
Paying Advance Tax in India has become much easier with the introduction of online payment methods. Here’s a step-by-step guide on how to pay Advance Tax online:
Step 1: Visit the income tax e-filing website
The first step in paying Advance Tax online is to visit the income tax e-filing website (https://www.incometax.gov.in/iec/foportal/) and login using your PAN and password.
Step 2: Select the ‘Advance Tax’ option
Once you have logged in, select the ‘Advance Tax’ option from the ‘e-Pay Taxes’ tab on the left-hand side of the screen.
Step 3: Enter the necessary details
Enter the required details such as PAN, assessment year, type of payment (Advance Tax), mode of payment (Net banking), bank name, and amount of tax to be paid.
Step 4: Verify the details
Verify the details entered and click on ‘Submit’. You will be redirected to the payment gateway page of the bank you have selected.
Step 5: Make the payment
Enter your net banking credentials and follow the instructions on the payment gateway page to make the payment. Once the payment is successful, you will receive a confirmation message and an e-receipt.
Step 6: Download the challan
After making the payment, download the challan for your records. The challan contains details such as the date of payment, amount paid, and transaction ID.
How to Fill in Advance Tax Challan?
An Advance Tax Challan is a form used to make payments towards Advance Tax in India. Here’s a step-by-step guide on how to fill in an Advance Tax Challan:
Step 1: Download the Advance Tax Challan
The first step is to download the Advance Tax Challan from the income tax e-filing website (https://www.incometax.gov.in/iec/foportal/) or collect a physical copy from your bank.
Step 2: Fill in the personal details
In the first section of the Challan, fill in your personal details such as name, address, and Permanent Account Number (PAN).
Step 3: Fill in the assessment year
In the next section, fill in the assessment year for which the Advance Tax payment is being made. For example, if you are making the payment in the financial year 2022-23, the assessment year would be 2023-24.
Step 4: Select the type of payment
In the ‘Type of Payment’ section, select ‘100 – Advance Tax’ as the type of payment.
Step 5: Fill in the bank details
In the next section, fill in the bank details such as the name of the bank, branch code, and the type of account.
Step 6: Fill in the tax amount
In the ‘Amount’ section, fill in the amount of tax you wish to pay. This should be calculated based on your estimated income for the year and the due dates for payment.
Step 7: Fill in the payment details
In the payment details section, fill in the payment mode, which can be either net banking, debit card, or credit card. If you are paying through net banking, select the bank you wish to use and enter your net banking login details.
Step 8: Verify the details
Once you have filled in all the details, verify the information entered in the Challan. Make sure that all the details are accurate and match the information provided on your income tax returns.
Step 9: Make the payment
After verifying the details, make the payment using the payment mode you have selected. Once the payment is successful, you will receive a confirmation message and an e-receipt.
Filling in an Advance Tax Challan is a simple process that requires accurate information and careful attention to detail. By following the steps outlined above, taxpayers can easily fill in the Challan and make their Advance Tax payments in a timely manner, avoiding any penalties or interest that may be levied for non-payment or underpayment of tax.
Advance Tax Calculator
An Advance Tax Calculator is a tool that helps taxpayers in India calculate their liability towards Advance Tax. Here’s how you can use an Advance Tax Calculator:
Step 1: Enter your estimated income
The first step is to enter your estimated income for the financial year. This includes income from all sources such as salary, business profits, capital gains, and other sources.
Step 2: Deduct eligible deductions
Next, deduct any eligible deductions such as contributions towards Provident Fund, Life Insurance, and Health Insurance under Section 80C, 80D, and other sections of the Income Tax Act.
Step 3: Add other income
If you have any other sources of income such as rental income, interest income, or dividend income, add them to your estimated income.
Step 4: Calculate taxable income
Once you have arrived at your total income, deduct the applicable exemptions and deductions to arrive at your taxable income.
Step 5: Calculate Advance Tax liability
Using the Advance Tax Calculator, you can calculate your Advance Tax liability based on the due dates and applicable rates of tax. The rates of tax applicable to an individual depend on their age and income bracket.
Step 6: Make adjustments for TDS and tax credits
If you have already paid any tax through TDS (Tax Deducted at Source) or have any tax credits such as tax deducted on foreign income, adjust these amounts from your Advance Tax liability.
Step 7: Pay Advance Tax
Once you have calculated your Advance Tax liability, make the payment through the income tax e-filing website or a physical Challan.
Advance Tax Slabs
Here’s a table summarizing the Advance Tax Slabs for individuals in India based on their age and income:
|Age||Income Slab||Advance Tax Rate|
|Below 60 years||Up to Rs. 2.5 lakh||No Advance Tax|
|Below 60 years||Rs. 2.5 lakh to Rs. 5 lakh||5% of the amount exceeding Rs. 2.5 lakh|
|Below 60 years||Rs. 5 lakh to Rs. 10 lakh||Rs. 12,500 + 20% of the amount exceeding Rs. 5 lakh|
|Below 60 years||Above Rs. 10 lakh||Rs. 1,12,500 + 30% of the amount exceeding Rs. 10 lakh|
|60-80 years||Up to Rs. 3 lakh||No Advance Tax|
|60-80 years||Rs. 3 lakh to Rs. 5 lakh||5% of the amount exceeding Rs. 3 lakh|
|60-80 years||Rs. 5 lakh to Rs. 10 lakh||Rs. 10,000 + 20% of the amount exceeding Rs. 5 lakh|
|60-80 years||Above Rs. 10 lakh||Rs. 1,10,000 + 30% of the amount exceeding Rs. 10 lakh|
|Above 80 years||Up to Rs. 5 lakh||No Advance Tax|
|Above 80 years||Rs. 5 lakh to Rs. 10 lakh||20% of the amount exceeding Rs. 5 lakh|
|Above 80 years||Above Rs. 10 lakh||Rs. 1,00,000 + 30% of the amount exceeding Rs. 10 lakh|
Note: The above table is only a summary of the Advance Tax Slabs for individuals in India and should not be considered as a substitute for professional tax advice. The applicable rates of tax may vary depending on the specific circumstances of the taxpayer.
FAQs on Advance Tax
Advance Tax is a system of paying taxes on your estimated income in advance, rather than waiting until the end of the financial year to pay your tax liability.
Individuals whose tax liability for the financial year is Rs. 10,000 or more after deducting TDS and tax credits are required to pay Advance Tax.
The due dates for Advance Tax payments are June 15, September 15, December 15, and March 15 of the financial year.
Advance Tax is calculated on the estimated income for the financial year and the applicable tax rate based on the taxpayer’s age and income slab.
Non-payment or underpayment of Advance Tax may attract interest and penalties.
Yes, you can revise your Advance Tax payments if you realize that you have made an incorrect estimation of your income.
Yes, you can claim a refund of Advance Tax if you have paid more tax than your actual tax liability.
Advance Tax is an important tax compliance requirement for individuals in India. It is a system of paying taxes on estimated income in advance, rather than waiting until the end of the financial year to pay the tax liability. Advance Tax payments are mandatory for individuals whose tax liability is Rs. 10,000 or more after deducting TDS and tax credits.
By paying Advance Tax, taxpayers can avoid the burden of paying a large amount of tax at the end of the financial year, as well as avoid penalties and interest charges for non-payment or underpayment of tax. It is essential to calculate and estimate the correct amount of Advance Tax to be paid to avoid any additional financial burden.
Understanding the Advance Tax Slabs and using an Advance Tax Calculator can help taxpayers estimate and plan their tax payments accordingly. Taxpayers should also keep track of the due dates for Advance Tax payments and revise their payments if necessary.
Overall, being knowledgeable about Advance Tax can help taxpayers stay ahead of their tax liabilities and simplify their tax compliance process.