Advance Tax

Advance tax is the amount of income tax that is paid much in advance rather than a lump-sum payment at the year-end. Also known as earn tax, advance tax is to be paid in installments as per the due dates decided by the income tax department.

How is advance tax calculated?

Here is how the advance tax to be paid is arrived at:

Income tax on estimated total income
- Relief under section 87A
= Income tax after relief u/s 87A
+ Surcharge on the estimated income
= Tax Liability
+ Education cess
= Total Tax Liability
- Relief other than relief u/s 87A
= Advance Tax Liability

Why is advance tax important?

Advance tax is the income tax paid in advance for the income earned in a particular financial year. Usually, the tax is to be paid when the income is earned. Still, under the tax provisions of advance tax, the payer has to estimate the income for the entire year. And based on this estimate the tax is paid at specific time intervals. Here it is important that the tax payer estimates the income and then calculates the estimated tax on it to check whether he or she needs to pay the advance tax and how much.

Who should pay advance tax?

As per section 208 of the Income Tax Act 1961, every person whose estimated tax liability for the year is more than or equal to `10,000 is liable to pay advance tax.

Those who are excluded from paying advance tax are senior citizens who are above the age of 60, not having any income from business or profession.

What are the important dates in advance tax?

Advance tax varies with the due dates. For FY 2017-18, the advance tax to be paid by an individual, as well as corporate assessees, are as follows:

  Due Date Advance Tax Payable
1. On or before 15th June 15%
2. On or before 15th September 45%
3. On or before 15th December 75%
4. On or before 15th March 100%

Which forms are required in advance tax?

Challan No. ITNS 280 is the form that needs to be duly filed on the prescribed due dates. Pre-requisites of Challan No. ITNS 280 are:

  • PAN Details: Carefully publish correct PAN details, or else your tax will be deposited in someone else’s name
  • Assessment Year: Select the correct assessment year for which the tax is to be paid as it is going out in advance for the upcoming financial year
  • Selecting the type of payment: The taxpayer has to select the type of payment in the form. If the tax is being paid for the same financial year based on the estimated income- it would be advance tax. If the tax is being paid after the end of the financial year – it would be self-assessment tax.

After the payment is made, a Challan Identification Number (CIN) will be provided. You are required to keep a note of the same and use this CIN while filing for income tax return. Also, verify once whether the IT department has received the online payment made through ITNS 280.

1. What if I pay advance tax* less or more than required for a financial year?

The IT Act has provided four dates and the percentage of advance tax to be paid on each of these dates. If by chance you have paid the excess advance tax you would receive a refund subject to section 237 of the Income Tax Act with 6% interest per annum on the excess amount subject to Section 244A of the Act if the excess is more than 10% of the tax liability. If on March 15, you find that you have a shortfall of advance tax to be paid you can still pay the advance tax before 31st March and the same would be treated as advance tax.

2. What is the penalty for missing the dates of payment of Advance Tax?

If you miss the dates for payment of advance tax you will be levied interest under section 234B and 234C of the Income tax Act.

3. Can I claim deduction under 80C while estimating income for determining my advance tax?

Yes, you can claim deduction under Section 80C while estimating income for determining your advance tax.

4. Is an NRI liable for payment of advance tax?

Yes, an NRI is liable for payment of advance tax on the income earned in India as per provisions of the Income tax Act in force for the relevant assessment year.
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*Tax benefits are subject to conditions under Section 208, 234B, 234C, 244A and 237 and other provisions of the Income Tax Act,1961. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above
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