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Your Guide to Advance Tax Payment

Your Guide to Advance Tax Payment

Advance tax payment is a smart way to manage your income tax obligations, allowing you to spread your tax payments across the year instead of a lump sum at year-end. This “pay-as-you-earn” system benefits you by reducing financial pressure and providing the government with a steady revenue stream.

If you have income from sources beyond your regular salary, such as rent, capital gains, lottery winnings, or fixed deposits, advance tax is for you. Payments can be made easily online or at specified banks, helping you avoid last-minute financial strain and interest penalties.

Why Should Advance Tax Payments Be Made?

Advance tax payments provide a continuous flow of income for the government, aiding in financial planning and the execution of public projects. For taxpayers, paying advance tax reduces the pressure of a significant lump sum payment at the end of the financial year. Additionally, failing to make timely advance tax payments can result in interest penalties under the Income Tax law, making it imperative to comply with the installment schedule.

Who Should Pay Advance Tax?

Advance tax is mandated for various categories of taxpayers whose estimated tax liability exceeds Rs. 10,000 for the financial year. These include:

  • Individuals (including salaried employees): If the total tax liability after TDS (Tax Deducted at Source) is expected to be Rs. 10,000 or more.
  • Self-Employed and Professionals: Those earning income through business, freelancing, consultancy, or any profession.
  • Corporate Entities: All public and private limited companies.
  • Partnership Firms and LLPs: If their tax liability exceeds Rs. 10,000.
  • Non-Resident Taxpayers: Non-resident individuals and foreign companies with income in India.
  • Capital Gains Earners: Those with significant capital gains from investments.
  • Businesses with Specified Incomes: Certain businesses, like those earning from lotteries or horse racing, irrespective of the Rs. 10,000 threshold.

Who is Not Liable to Pay Advance Tax?

Certain groups are exempt from paying advance tax, including:

  • Senior Citizens: Individuals aged 60 years or above without business or professional income.
  • Taxpayers with Income Below the Taxable Limit: Those whose income does not exceed the taxable threshold.
  • Small Businesses under Presumptive Taxation: Businesses with an annual turnover up to Rs. 2 crores under the presumptive taxation scheme.
  • Farmers and Agriculturists: Income from agricultural activities is not considered for advance tax.
  • Income from Commission or Brokerage: Exempted from advance tax.
  • Professionals under Section 44ADA: Specified professionals like doctors, lawyers, and engineers.
  • Individuals with Presumptive Business Income: Covered under presumptive taxation provisions.
  • Salaried Individuals: Generally, exempt as their employers deduct TDS.
  • Dividend Income Recipients: Exempt from advance tax on such income.

Advance Tax Due Dates for FY 2024-25

The advance tax payments are spread across four installments:

  • 15th June: 15% of the total advance tax
  • 15th September: 45% of the total advance tax (minus any tax already paid)
  • 15th December: 75% of the total advance tax (minus any tax already paid)
  • 15th March: 100% of the total advance tax (minus any tax already paid)

For taxpayers under the Presumptive Taxation Scheme (sections 44AD & 44ADA), the entire advance tax must be paid by 15th March.

How to Pay Advance Tax Online

  1. Visit the e-filing portal of the Income Tax Department of India.
  2. Click on the ‘e-Pay Tax’ option in the ‘Quick Links’ section.
  3. Enter your PAN, confirm it, and provide your mobile number.
  4. Input the OTP received on your mobile.
  5. Choose ‘Income Tax’ and proceed.
  6. Select ‘Assessment Year’ as 2025-26 and ‘Type of Payment’ as ‘Advance Tax (100)’.
  7. Enter tax details, select the payment method and bank.
  8. Preview the challan details and click ‘Pay Now’.
  9. Save the tax receipt for future reference.

Interest on Advance Tax

Failing to pay advance tax can result in interest penalties:

  • Section 234B: If at least 90% of the total tax is not paid by the end of the financial year, an interest of 1% per month is charged on the unpaid amount.
  • Section 234C: For delays in each installment, interest is charged at 1% per month on the shortfall from the due amount.

Steps to Calculate Advance Tax Liability

  1. Estimate Total Income: Sum all sources of income, such as salary, capital gains, rental income, etc.
  2. Subtract Deductions: Apply deductions under sections 80C, 80D, etc.
  3. Calculate Tax Payable: Based on current tax slab rates.
  4. Adjust for TDS: Subtract any TDS already deducted or expected to be deducted.

Example of Advance Tax Calculation

Let’s take the case of Priya, a graphic designer who works as a freelancer. For the financial year 2024-25, she estimates the following as per the old tax regime:

  • Gross Receipts: Rs 25,00,000
  • Expenses: Rs 15,00,000
  • PPF Contribution: Rs 50,000
  • LIC Premium: Rs 30,000
  • Medical Insurance: Rs 15,000
  • TDS on Receipts: Rs 35,000
  • Interest on FDs: Rs 12,000

Tax Calculation:

  1. Net Income from Profession: Rs 10,00,000 (Gross Receipts – Expenses)
  2. Total Income: Rs 10,12,000 (including FD interest)
  3. Deductions:
    • Section 80C: Rs 80,000 (PPF + LIC)
    • Section 80D: Rs 15,000 (Medical Insurance)
  4. Total Deductions: Rs 95,000
  5. Net Taxable Income: Rs 9,17,000 (Total Income – Total Deductions)
  6. Tax Payable:
    • For income up to Rs 2,50,000: Nil
    • For income between Rs 2,50,001 and Rs 5,00,000: 5% of Rs 2,50,000 = Rs 12,500
    • For income between Rs 5,00,001 and Rs 9,17,000: 20% of Rs 4,17,000 = Rs 83,400
    • Total Tax Payable: Rs 95,900
  7. Education Cess (4%): Rs 3,836
  8. Total Tax: Rs 99,736
  9. Less TDS: Rs 35,000
  10. Advance Tax Liability: Rs 64,736

Installment Schedule:

  • 15th June: 15% of Rs 64,736 = Rs 9,710
  • 15th September: 45% of Rs 64,736 – Rs 9,710 = Rs 29,431 (after deducting June payment)
  • 15th December: 75% of Rs 64,736 – Rs 39,141 = Rs 9,931 (after deducting September payment)
  • 15th March: 100% of Rs 64,736 – Rs 49,072 = Rs 15,664 (after deducting December payment)

Points to Remember

  1. Adjust Installments: If your income estimates change, update your installments accordingly.
  2. Avoid Interest Penalties: Ensure timely payment to avoid interest under Sections 234B and 234C.

Frequently Asked Questions

Why is advance tax considered an asset?
Advance tax is not categorized as an expense. Instead, it is considered an asset and is adjusted against one’s tax liabilities when the Balance Sheet is finalized. It is a charge on income and is not classified as an expenditure. In the Balance Sheet, it is recorded under Loans and Advances.

Is advance tax deducted from salary?
Yes, advance tax rules apply to everyone, including salaried employees, if their tax liability for the year exceeds Rs 10,000. For salaried employees, the employer usually deducts advance tax from their monthly salary and submits it to the tax department.

Do I need to pay advance tax on capital gains?
Yes, if your estimated tax liability from capital gains is Rs 10,000 or more, you must pay advance taxes. Profits from Futures & Options (F&O) and intraday trading are treated as business income. Therefore, you need to estimate the profits for the entire financial year and pay the applicable advance taxes in four installments.

Can I pay advance tax in cash?
Yes, you can pay advance tax in cash. You can visit any branch of the selected bank and remit the tax amount over the counter using Cash, Cheque, or Demand Draft, along with the Challan Form.

Conclusion

Timely payment of advance tax helps avoid last-minute financial strain and interest penalties. Accurate estimation and planning of your income and deductions are crucial for compliance and efficient tax management. Adhering to advance tax deadlines ensures smooth tax planning and contributes to the financial health of both the taxpayer and the government. At InstaFiling, we are dedicated to providing personalized, client-focused solutions to help individuals and businesses meet their advance tax obligations effortlessly. We recognize the difficulties in managing tax regulations alongside everyday operations. That’s why we offer a variety of proactive services designed to simplify the advance tax payment process and reduce administrative burdens. Our aim is to ensure smooth compliance with advance tax requirements, offering peace of mind and financial assurance to our clients.

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