Advance Income Tax (Guide 2023)
Advance income tax is a way by which the government keeps on receiving money throughout the year. It’s also known as pay as you earn scheme.
What is an advance tax in income tax?
Advance income tax is the tax charged on your total annual income in a financial year. This tax can be paid in slots/installments as well as a single payment. Unlike TDS this tax has to be deposited by the person receiving the income and not their employer or source of income.
Who is liable to pay advance tax?
According to section 208, any individual whose total tax liability for the year is Rs. 10,000 or more, must pay tax in advance.
When should we pay advance tax?
The advance tax has to be paid in four small installments throughout the year. These installments are made every third month.
The following table shows the date of different installments of advance tax for the year:
|Status||By 15th June||By 15th Sept.||By 15th Dec.||By 15th March|
|All assessees (other than the eligible assessee as referred to in Section 44AD or section 44ADA)||Minimum 15% of advance tax||Minimum 45% of advance tax||Minimum 75% of advance tax||Minimum 100% of advance tax|
|Taxpayers who opted for the presumptive taxation scheme of section 44AD or section 44ADA||Nil||Nil||Nil||Minimum 100% of advance tax|
Who is exempted from paying advance tax?
A senior citizen who doesn’t have any income source other than a pension is not liable to pay advance tax.
Other than them, taxpayers who have opted for the presumptive taxation scheme under section 44AD/ 44ADA, are not required to pay the quarterly installments. But, they must pay the total taxable amount on or before 15th March of that financial year.
How advance tax is calculated?
The advance income tax is calculated on the total gross income incurred in a year. The sources of income include not just salary but other incomes like dividends, side business income, freelancing, interest on deposits, sale of any property etc.
The following points should be kept in mind while calculating advance income tax:
- The total tax liability calculated should not include TDS, tax on dividends, and any other form of tax paid.
- The total tax after deducting other taxes must be more than or equal to Rs 10,000.
- The tax rate to compute the income tax should be the same as per the income tax slab rate given for the year.
Here are the tax rates for the financial year 2022-23
|Income tax rate||Annual Income|
|Nil||Income up to Rs. 2,50,000|
|5%||Income between Rs 2,50,000 to Rs 5,00,000|
|20%||Income between Rs. 5,00,000 to Rs 10,00,000|
|30%||Income above Rs 10,00,000|
- Apart from the above, health and education tax is also added at the rate of 4% on the amount of tax.
After the total amount of tax is calculated the next step is to divide it into four installments.
- The first installment is equal to 15% of the tax amount, to be paid by 15th June.
- The second installment is equal to 45% of the tax amount, to be paid by 15th Sept…
- The third installment is equal to 75% of the tax amount, to be paid by 15th Dec.
- The fourth installment is equal to 100% of the tax amount, to be paid by 15th March.
What happens if I don’t pay advance tax?
If somehow you weren’t able to pay advance tax fully or partially, a penalty is charged under section 234B of the Income Tax Act. Simple interest at 1% per month or part of a month is charged on the unpaid advance tax amount.
Penalty interest under section 234 C can also be imposed under the following conditions:
- If the advance tax paid on 15th June is less than 12% of the tax payable amount.
- If the advance tax paid on 15th Sept is less than 36% of the tax payable amount.
- If the advance tax paid on 15th Dec is less than 75% of the tax payable amount.
- If the advance tax paid on 15th March is less than 100% of the tax payable amount.
In case of taxpayers opted for a presumptive tax scheme, the penalty only be imposed if the advance tax is not fully paid on or before 15th March.
What happens if you pay quarterly taxes late?
No penalty is imposed if the quarterly taxes are not paid on time. However, a penalty will be levied when the full taxable amount is not paid by the end of the financial year.
FAQ- Advance Income Tax
1. Is it better to pay advance tax?
Advance tax is the source of income for the government. Our advance tax makes sure that the government has enough money to tackle any kind of issue/emergency. It’s important for the smooth functioning of our country.
2. Can we pay advance tax in cash?
Yes, you can choose to pay your advance tax in cash through the bank. Fill out the challan 280 TDS/TCS and visit the bank authorized to pay advance tax/Income tax and pay with cash/card/net banking.
3. Can you get an advance on your tax return?
If you have paid more tax than the total tax liability, then you can claim a refund on the advance tax paid. You can also revise the payments of upcoming installments. You will have to show it in ITR.
4. How many times advance tax can be paid?
Generally, the advance tax is to be paid in four installments; 15th June, 15Th Sept, 15th Dec, and 15th March.
5. Can I pay advance tax every month?
The advance tax can be paid on or before 15th June, 15Th Sept, 15th Dec, and 15th March.
Advance Income Tax is applicable on any individual whose estimated tax liability is more than Rs 10,000 after deducting TDS and other deductions. Senior citizens and salaried persons who don’t have any other source of income outside salary and pension are exempted from advance income tax. The advance income tax is calculated on the total earnings within the financial year. The tax rate is as per the Income Tax Act. The tax can be paid quarterly on or before every 15th of June, Sept, Dec, and March. A penalty is imposed in case of delay of advance tax under sections 234B and 234C.
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