What is Advance Tax?
Advance Income Tax means to pay your yearly income tax liability in installments. It reduces the excess burden of assessee's at the end financial year. It is obligatory to pay advance tax in every case where the advance tax payable is Rs.10,000 or more in any financial year. Advance tax should be paid in the year in which the income is received.
Liability-
Under this scheme, you have to pay Advance Income Tax if you have additional income in the form of Interest, Income from House Property, Income from capital gains, Income from business or profession (including winning from horse races, lotteries, cross word puzzles etc), income earned abroad etc.
The due date for payment of advance tax for both individual and corporate assessee's are as under-For any assessee, other than those who have opted Presumptive Taxation Scheme covered u/s 44AD & 44ADA
| Due Date for any previous year | For any assessee (other than covered u/s 44AD & 44ADA ) |
| On or before 15th June | Up to 15% of advance tax payable |
| On or before 15th September | Up to 45% of advance tax payable |
| On or before 15th December | Up to 75% of advance tax payable |
| On or before 15th March | Up to 100% of advance tax payable |
For assessee who have opted for Presumptive Taxation Scheme covered u/s 44AD & u/s 44ADA can deposit their tax liability in one installment as below-
| Due Date for any previous year | An Assessee covered u/s 44AD & 44ADA |
| On or before 15th March | 100% of advance tax payable |
Should keep in mind the following points-
- Any payment of advance tax made on or before March 31 shall also be treated as advance tax paid during financial year.
- Deduction under Chapter VIA is allowable while computing liability of advance tax.
- TDS is to be reduced from total tax liability of assessee and then specified percentage be calculated for advance tax.
- Advance tax is also applicable on both Non-Resident Indian (NRI) and a Non Resident if they have any income accrue during the year in India.
- If the last day for payment of any installment of advance tax is a day on which the receiving bank is closed, the assessee can make the payment on the next immediately following working day, and in such cases, the mandatory interest leviable under sections 234B and 234C would not be charged.
Exception for depositing Advance Tax-
- Resident individuals who are over 60 years of age and do not have income chargeable under the head ‘Profits and Gains of Business or Profession' are not required to pay advance tax.
- For Individuals with salary as sole source of income, advance tax would be taken care 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.
Mode of Payment-
Advance Tax to be paid on Challan No. /ITNS 280 by selecting 100 in type of payment. It can be deposited either through cash, cheque, and electronic mode (Debit Card/Credit Card) at all branches of banks, which are empaneled with the Income Tax Department. An assessee can also pay advance tax through online banking etc.
For Example-
How to Compute Advance Tax Liability for the Financial year 2017-18
Answer: The Computation of Tax Liability on imaginary figures is as under:
| Particulars | Amount |
| Income from salary | 2,40,000 |
| Income from house property (Net out of Repair & Maintenance) | 4,20,000 |
| Profits and gains of business or profession | 1,35,000 |
| Income from other sources | 105,000 |
| Gross Total Income | 9,00,000 |
| Less :Deductions under Chapter VI-A | 1,40,000 |
| Total Taxable Income | 7,60,000 |
| Tax on total income at applicable rates | 64,500 |
| Less : rebate under section 87-A | - |
| Tax Liability After Rebate | 64,500 |
| Add: Surcharge | - |
| Tax Liability After Surcharge | 64,500 |
| Add: Education cess @3% | 1,935 |
| Tax liability for the year | 66,435 |
| Less: TDS | 6,435 |
| Tax payable | 60,000 |
Advance Tax at specified rates to be deposited as below -
| On or before 15th Jun. | Up to 15% of 60,000= 9,000 |
| On or before 15th Sept. | Up to 45% of 60,000= 27,000 |
| On or before 15th Dec. | Up to 75% of 60,000= 45,000 |
| On or before 15th Mar. | 100% = 60,000 |
Interest on late payment of Advance Tax?
- Interest u/s 234C- Interest @1% p.m. for a period of 3 months, will be payable for every deferment, except for the last installment of 15th March where it will be 1% for one month is payable if the tax is not paid as per the due dates i.e. for Deferment in Installments of Advance Tax.
- Interest u/s 234B- Interest @1% p.m. from 1st day of assessment year up to date of deposit tax & interest is payable if 90% of the assessed tax is not paid or is short paid before the end of the financial year i.e. for Default in Payment of Advance Tax.
Calculation on the basis of above example, Interest is calculated as under- Interest under section 234C-
| Particulars | Advance Tax due | Advance Tax paid | Shortfall | Interest u/s 234C |
| Up to 15th Jun. | 9,000 | 5,000 | 4,000 | 120 |
| Up to 15th Sep. | 27,000 | 15,000 | 12,000 | 360 |
| Up to 15th Dec. | 45,000 | 25,000 | 20,000 | 600 |
| Up to 15th Mar. | 60,000 | 35,000 | 25,000 | 250 |
Total Interest under section 234C is Rs. 1,330/-
Interest under section 234B-
Consider the above example:
Interest under section 234B for failure to pay 90% of the assessed tax before 31st March. As the above shortfall has paid 25,000 on 15th July, interest under section 234B @ 1% per month will be levied for 4 months (i.e. April to July).
Interest under section 234B will be Rs. 1,000/- i.e. (25,000 x 1% x 4).
Total interest payable under section 234B & 234C is Rs. 2,330 (1,330+1,000).
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