Understanding Advance Tax Payments and Their Deadlines in India

Taxes are the framework of any country’s economy and India is no different. Of all the tax provisions in India, the advance tax was set to allow taxpayers to pay the government in installments, with one of these being in the middle of the financial year. This article discusses advance tax in detail as well as its requirements, deadlines and consequences under the Indian taxation regime. 

What is Advance Tax? 

Tax payment in advance is also known as pay as you earn tax is a regime whereby individuals pay some portion of the prescribed income tax in the financial year when the income is earned rather than at the end of the financial year. This system assists the government in getting continuous replenishment of cash throughout the successive months of the year without putting much pressure on so many taxpayers to pay the government during the particular period of tax collection. Advance tax is governed by Section 208 of the Income Tax Act, 1961; it is applicable to any person who expects his or its tax liability during the financial year would be Rs.10,000 or more. Advance tax is one of the critical adjustments that enhance compliance and help maintain the economy of a nation. To the taxpayers, it assists in spreading the costs across the year rather than having to pay out at the end of the year. To the government, it warrants stable revenue accruals that help it appropriately coordinate public spending. 

Who is Liable to Pay Advance Tax? 

Advance tax is not a particular type of taxpayer. The following individuals and entities may be required to pay advance tax:

1. Salaried Individuals

Any salaried person who has his or her tax deducted at source (TDS) by the employer does not have to pay advance tax. Additional income consists of income from house property or other sources or any other income from which tax liability is more than Rs. 10,000 in the financial year then it is compulsory to pay advance tax on that amount. For instance, let's assume a salaried person has an income from wages equal to Rs. 12,00,000/- p.a and a rental income of Rs. 3,00,000/-. The TDS deducted by the employer is only the salary income excluding those that are specified earlier. Therefore, the individual has to arrive at the number of taxes on the rental income and pay advance taxes accordingly. 

2. Self-Employed Individuals

Individuals such as professionals, freelancers, entrepreneurs, partners of firms, and most importantly those individuals whose estimated tax liability exceeds Rs 10,000 have to pay advance tax. They experience fluctuation in income and hence require close follow-up on the earnings. 

3. Corporates and Firms

The advance tax has to be paid on the profits of the companies and firms. Corporation entities have also developed complex internal financial phases to determine these advance taxes and make sure they meet the deadlines. 

4. Taxpayers From the Income of:

As the persons getting income from capital gains, house property, and dividends get taxed using advance tax as against such income is not discriminated through TDS. For example, profits from the sale of shares or mutual funds are taxed and thus advance tax must be paid immediately after realization. 

5. Senior Citizens:

Those who are 60 years or above and do not have any income from the business or profession are not required to pay advance tax. This exemption will help pensioners who are receiving pensions and other elderly persons who depend on interest incomes.

How to Calculate Advance Tax?

1. Estimate Total Income: Let it be your salary income, income from business, income from capital gains, income from house property, and any other income. Proposing income projection is important in order to prevent an occurrence of under-estimation of income or making unnecessary over-estimation of income. 
2. Deduct Allowable Deductions: Reduce the deductions permitted under different sections of the Income Tax Act Namely Section 80C, 80D & 24(b). They are an investment in PPF, ELSS, life insurance premiums, home loan interests, etc are a few of the most common deductions. 
3. Compute Tax Liability: Just apply the income tax slab rates to the available taxable income as per accrued financial year. For individuals necessities for slabs depend on age and the old or new tax system that the person wants to go for. 
4. Subtract TDS: Subtract any tax that has already been paid at the source of income by the employer or bank etc. At this step, there is a master check to make certain that there has been no over-taxation. 
5. Determine Advance Tax Liability: Where the balance tax works out to be more than Rs. 10,000, the taxpayer has to pay advance tax. This liability is a due instalment spread out in accordance with some time while in most cases it comprises of amount that continues on up to a given time.

For Example: Assuming a freelancer has targeted a total income of Rs. 15,00,000 per annum and avails the allowance for Rs. 2,00,000 under Section 80C. It increases the taxable income to Rs. 13,00,000/-. Thus, in accordance with the recommended tax slab rates total tax that must be paid is Rs. 1,82,500. If a TDS of Rs. 40,000 has been deducted then the freelancer has to pay advance tax as follows; Rs. 1,42,500 in installments. 

Deadlines for Advance Tax Payments

Advance tax payments are made in four installments during the financial year. The due dates and the percentage of tax payable are outlined below:

| Due Date | Advance Tax Payable | | 15th June | 15% of the total tax liability | | 15th September | 45% of the total tax liability (cumulative) | | 15th December | 75% of the total tax liability (cumulative) | | 15th March | 100% of the total tax liability |

Special Provisions for Presumptive Taxation Scheme:

Any person claiming under section 44AD or section 44ADA has to pay his entire advance tax by March 15 of the financial year.

Practical Example:

An assesses with a total tax liability of Rs. 1,00,000 has to pay Rs.15,000 by 15.06, Rs. 30,000 by 15.09, Rs. 30,000 by 15.12, and Rs. 25,000 by 15.03 for advance tax purposes.

How to Pay Advance Tax? 

Advance tax payments can be made online or offline:

1. Log on to the official website of the Income Tax Department or the National Securities Depository Limited (NSDL).
2. Choose the right form of challan to be filled (Challan 280 for those who file their taxes personally or as a non-corporate company). 
3. You need to input PAN, assessment year, and all relevant information to use this tool. 
4. Select the payment mode i.e., through net banking or debit card and then pay for the transaction.
5. Report the receipt to claim for future use.

Offline Payment

1. Take a trip to a specified bank.
2. Complete those details on Challan 280. 
3. The payment should be made by cash, cheque, or demand draft. 
4. Get the acknowledgment receipt from the bank.

Lessons for Failure to Pay or Payment Recovery

Failing to pay advance tax or paying it late can lead to penalties and interest under Sections 234B and 234C of the Income Tax Act:

• Section 234B: Penalty is charged if advance tax is not deposited or if the tax paid is less than 90% of total tax by 31st March.
• Section 234C: Fees are incurred in respect of payment of advance tax through installments and the interest is charged in case of delay in payments. 

Interest accrues at a single monthly 1% or any fraction thereof based on the outstanding balance.

Common Mistakes to Avoid

1. Incorrect Income Estimation: Failure to anticipate the income level can result in low estimates of advance tax remittance. 
2. Ignoring Additional Income: Some revenue earners leave out investment earnings, rents or capital gains as part of their tax returns. 
3. Not Keeping Track of Deadlines:In case of failure to meet assigned deadlines certain penalties as well as interest may be incurred.
4. Incorrect Use of Challans: This is a likely reason why failing to complete payments using the right challan creates confusion during reconciliation. 

In some special cases that may require an early payment, the concerned taxpayers may pay an advance tax.

1. Capital Gains: Those who earn capital gains have to pay their advance tax as soon as such gains are made. For example, if it has sold the shares in a financial year in August then the advance tax on the gains has to be paid in the subsequent instalment. 
2. Income from House Property: Lease revenue is another important adjunct income. Whenever the taxpayer receives rental income, they are supposed to assess how much amount they might earn in one year and then they have to pay advance tax.
3. Freelancers and Consultants: It is very common to hear freelancers earning money erratically during the course of a given year. The taxpayers have to determine their tax for the fiscal year on an accrual basis and pay advance tax.

Conclusion 

When, How & Why is significant for every taxpayer in India to keep away from penalties? If the income is estimated correctly, the deadlines are met, and the payments are timely, taxpayers can help build the nation’s economy and make taxes easy. If the need arises the individual can consult a tax consultant or make use of online tax aid facilities.

 Not only do you get rid of the last-minute rush for the advance tax payments but it also substantially saves a lot of time and energy which otherwise would be wasted in rushing through the last months of the financial year.

Frequently Asked Questions (FAQ)