What is Advance Tax

What is Advance Tax? Due Date, Online Payment, Eligiblity, Calculation

Advance Tax: Any individual with sources of income other than their salary is responsible to pay the advance tax. This advance tax is applicable to individuals who are earning income from rents, capital gains, stocks, bank fixed deposits, lottery winnings and much more. Any individual who is liable to pay the advance tax can simply pay the same through the concerned banks or even online. In this article, let’s understand what is advance tax, eligibility and tax exemption of advance tax in detail. Read on to find more.

What is Advance Tax?

As mentioned above, the income tax which should be paid in advance rather than a lump sum at the end of the year is known as Advance tax. Advance tax is otherwise known as Pay As You Earn tax. Thus this advance tax must be made in installments as per the Advance tax due dates specified by the officials.

Who is Eligible for Advance Tax?

The officials of the income tax department have notified the Advance Tax eligibility criteria, which outlines “who should pay the advance tax”.  Any individual can either visit the official website are also refer to the below-listed points to know advance tax eligibility criteria:

  • All salaried individuals, freelancers, and businesses whose total tax liability is Rs 10,000 or more in a financial year.
  • All taxpayers, salaried, freelancers, and businesses, are subject to advance tax.
  • Individuals earning income from House Rent or other properties.
  • Individuals earning income from stocks, capital gains, or fixed deposits.
  • Any individual who won the lottery is also liable to pay the advance tax.

Other Eligibility Criteria

  • Presumptive Income for Business: Businesses with presumptive income must pay the entire amount of their advance tax in one payment on or before March 15 if they have chosen the presumptive taxation plan under section 44AD. They also have the option of paying all of their taxes due by March 31.
  • Presumptive Income for Professionals: For example, independent professionals such as doctors, lawyers, and architects who are covered by the presumption plan under section 44ADA, must pay the entire amount of their advance tax liability in one payment by March 15th.

Advance Tax for Senior Citizens

Senior citizens who are aged 60 and above and do not own or operate a business are free from paying advance tax.

Advance Tax Due Dates FY 2021-22

The final installment of advance tax payment for the financial year 2020-21 is due on March 15, 2021. Taxpayers must pay the full amount of their advance tax liability by this date.

On or before 15th June 15% of advance tax
On or before 15th September 45% of advance tax less advance tax already paid
On or before 15th December 75% of advance tax less advance tax already paid
On or before 15th March 100% of advance tax less advance tax already paid

Note: For taxpayers who have chosen the Presumptive Taxation Scheme under sections 44AD and 44ADA – Business Income, will have to pay the 100% of advance tax before 15th March.

Calculation of Advance Tax

Follow the steps listed below to calculate your advance tax.

  1. Estimate Your Income: Estimate how much money you made in the financial year for which you’re calculating advance taxes. These are the several types of revenue that should be considered when calculating your earnings: Interest from FDs, savings accounts, and other sources, such as lottery winning, stocks, capital gains etc.,
  2. Calculation of Gross Taxable Income: To calculate your gross taxable income, multiply your salary by the figure above (while advance tax is not applicable on your salary, the sum total may change your tax slab which will change the tax liability further)
  3. Now calculate your tax liability by using the most recent income tax bracket that applies to you. Deduct the TDS that will be deducted or has already been deducted according to the TDS slab.
  4. Now, if you see that your tax liability after the deduction exceeds Rs.10,000 then you will have to pay the advance tax.

How To Pay Advance Tax?

The steps to pay advance tax is very simple. Just follow the steps listed below to know how to pay the advance tax online.

  • Step 1: Visit the official website of Tax Information Network (TIN) – Click Here.
  • Step 2: On the homepage, click on services and select “e-payment – pay taxes online”.
  • Step 3: Now move to the section “CHALLAN NO./ITNS 280” and click on “Proceed”.
  • Step 4: A new page will open. Select your tax applicable as “Income Tax“.
  • Step 5: Select “Advance Tax” in the type of payment.
  • Step 6: Enter the mode of payment and other important details as requested in the necessary fields.
  • Step 7: Click on “Proceed“.
  • Step 8: Now You’ll be forwarded to the bank’s Net Banking website once you’ve completed the form. This page should be double-checked for unpaid income.
  • Step 9: Following that, you’ll receive payment details, including your challan number. Save the payment details and challan number for future reference.

Advance Tax

Paying Advance Tax Using Challan 280

Any individual will be able to pay the advance tax online using the Challan 280. Refer to our article Challan 280 to know all the details and step-by-step procedure to pay the advance tax.

Advance Tax Exemptions

The list of exemptions under the advance tax are listed below:

  • Senior citizens who are 60+ and Super senior citizens who are 80+ years are free from advance tax.
  • Salaried individuals who are subject to TDS are exempted from the advance tax. However, when the salaried individual is earning through freelancing, or through capital gains, stocks, then they are subject to pay the advance tax.
  • If the TDS deducted exceeds the tax due for the year, there is no need to pay the advance tax

Advance Tax Refund

If the officials of the income tax department find that, if the individual has paid more tax than the actual tax, then officials will initiate the income tax refund process. For this, the individual who has paid the excess tax will have to submit Form 30 requesting the refund. Check our article on an income tax refund to know how to claim the advance tax refund.

Penalty for Paying Advance Tax After Deadline

If your advance tax payment is less than 90% of your assessed tax, you will be charged a monthly interest rate of 1% under Section 234B of the Income Tax Act. The interest is calculated as 1% interest per month on the delinquent amount until the tax is totally paid up. If you don’t pay by the second or third deadlines as notified by officials, you’ll be charged the same interest penalty.

If you do not pay your advance tax installment on time, you will be charged a 1% interest rate under Section 234C of the Income Tax Act.

FAQ’s on Advance Tax

The frequently asked questions on Advance Tax are listed below:

Question 1.
What is the advance tax slab?

Individual advance taxpayers in India pay income tax according to a slab system. Different tax rates are prescribed for different ranges of income under a slab system. The detailed advance tax slabs are mentioned in the above sections.

Question 2.
Should I pay the late fee, if I am paying advance tax after the deadline?

Yes, under the section of 234B and 234C of the income tax act, the individuals will be imposed with the penalty for paying the tax in delay.

Question 3.
Which challan is used to pay the advance tax?

Challan 280 is used to pay the advance tax.

Question 4.
Can I pay advance tax offline?

Yes, one can pay the advance tax through offline mode as well.

Question 5.
I am a freelancer, should I pay the advance tax?

Yes, if you’re liable to pay a tax of Rs.10,000 or more then you should pay the advance tax.

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