Advance Tax

Advance Tax works on ‘Pay as you earn’ principle.

If your tax liability in a financial year exceeds Rs 10,000, then the government gets very excited and can’t wait till year end to collect tax. It asks you to pay tax in advance.

Advance tax receipts help the government to get a constant flow of income throughout the year so that expenses can be incurred rather than receiving all tax payments at the end of the year. For instance: if your advance tax liability for the financial year 2011-12 has exceeded Rs. 10,000, you are expected to pay it in FY11-12 itself.

Who should file it? 

If you are a salaried employee, you need not pay advance tax as your employer deducts tax at source (TDS). Advance tax is applicable when an individual has sources of income other than his salary. For instance, if an assessee earns income via capital gains on shares, interest on fixed deposits, winnings from lottery or races, capital gains on house property besides his regular business/salaried income then after adjusting for expenses or losses he needs to pay advance tax.

Please note that advance tax is payable even by salaried employees on their other income.

While employers deduct TDS on salaries, advance tax is paid on income that is not subject to TDS. Professionals (self-employed) and businessmen will have to pay taxes in advance as, given their business income, the liability can be huge. The same implies for companies and corporates.

Payment of advance tax: Self employed and businessmen

Due date of installment Amount payable
On or before 15th September Not less than 30% of the advance tax liability
On or before 15th December Not less than 60% of the advance tax liability
On or before 15th March 100% of the advance tax liability

Payment of advance tax: Companies

Due date of installment Amount payable
On or before 15th June Not less than 15% of the advance tax liability
On or before 15th September Not less than 45% of the advance tax liability
On or before 15th December Not less than 75% of the advance tax liability
On or before 15th March 100% of the advance tax liability

 

Advance tax has to be paid on the 15th of September, December and March— in instalments of 30%, 30% and 40%, respectively—for self employed and businessman. Companies need to pay it on the 15th of June, September, December and March.

How to file it? 

Individuals may pay advance tax using tax payment challans at bank branches authorised by the Income Tax (I-T) Department. It can be deposited with the Reserve Bank of India, State Bank of India, ICICI Bank, HDFC Bank, Indian Overseas Bank, Indian Bank, Allahabad Bank, Syndicate Bank, Axis Bank, Punjab National Bank, Punjab & Sindh Bank and other authorised banks. There are 926 branches in India that can accept advance tax payments. Individuals may also pay it online through the I-T department or the National Securities Depository.

If you miss the deadline

If you fail to pay or the amount you’ve paid is less than the mandated 30% of the total liability by the first deadline (15 September), you will need to pay an interest. This is computed @ 1% simple interest per month on the defaulted amount for three months.

The same interest penalty would apply if you fail to pay the second deadline (15 December). Failing to pay the third and last deadline (15 March) would mean paying 1% simple interest on the defaulted amount for every month until the tax is fully paid.

What if advance tax paid is more than required?

If the amount paid as advance tax is higher than the total tax liability, the assessee will receive the excess amount as a refund. Interest @ 6% per annum will be paid by the Income Tax department to the assessee on the excess amount if the amount is more than 10% of tax liability.