Advance Tax Payment

What is Advance Tax Payment?

Advance Tax Payment is a system where you make periodic payments of your estimated taxes before the end of the financial year. It helps in the timely collection of taxes and ensures a steady revenue generation for the Government of India.

This practice is required for individuals and businesses with substantial income to prevent a lump-sum tax burden at the end of the fiscal year.

The applicability of advance tax comes into the picture when you have sources of income other than your salary. For example:

• Income through interest on investments

• Income through capital gains, business, house property, or lottery

Who Should Pay Advance Tax?

• A salaried, business person and freelancer: If the total liability of a salaried employee or a freelancer or a businessman exceeds INR 10,000 during a financial year, the assessee is liable to pay tax in advance. However, a senior citizen above 60 years may exempt himself from paying any advance tax if he does not run or operate any business.

• Income of a Business: If a taxpayer opts for a presumption taxation scheme to discharge the tax liability under section 44AD, he is required to pay the total tax in advance in one installment by 15th March. He may also consider paying all due by 31st March.

• Presumption Income of professionals: Professionals, who are independent such as an architect, lawyers, or doctors, may come under the category of the presumptive scheme, which then has to pay the whole tax in one installment under section 44ADA. 

What is the Due Date of Advance Tax for FY 2023-24 (AY 2024-25)?

For Taxpayers Opting Presumptive Taxation Scheme for Business Income under Sections 44AD and Section 44ADA:

How to Pay Advance Tax?

You can pay advance tax through the following two ways:

1. Online Method

   Step 1: Go to the e-filing portal of the Income Tax Department 

   Step 2: Select the “e-Pay Tax” option from the “Quick Links” section, or, search “e-Pay Tax” in the Search Bar.

   Step 3: Login to the Tax e-Filing portal using the below mentioned details, and click on “Continue”:

   • PAN Number

   • Mobile Number

   • 6-Digit OTP

   Step 4: Select the “Income Tax” box and press on the “Proceed” tab.

   Step 5: You need to select the “Assessment Year” as AY 2024-25 and “Type of Payment” as “Advance Tax (100)”. Click on “Continue”.

   Step 6: Enter the tax details, such as the following, and click on “Continue”:

   • Tax

   • Surcharge

   • Cess

   • Interest

   • Penalty

   • Others

   Step 7: On the next page, select the mode of payment (net banking, credit card, or debit card) and enter the required payment details. Now, click on "Submit". You can also edit these details, if needed.

   Step 8: You will receive a confirmation message on which BSR Code and Challan Serial Number is mentioned. You need to mention these details while filing your ITR.

2. Offline Method

   Step 1: Download the Challan 280 form from the official website of the Income Tax Department.

   Step 2: Fill out the form with your personal details, assessment year, PAN card number, and payment details.

   Step 3: Take the completed form to any authorized bank and submit it along with the payment.

   Step 4: The bank will give you a copy of the Challan 280 form as a receipt.

What is Late Payment Interest on Advance Tax?

1. Nature of Interest:

   • Interest charged on unpaid advance tax is termed as Advance Tax Late Payment Interest.

   • Levied under Section 234B of the Income Tax Act, 1961.

2. Rate of Interest:

   • Late payment interest is set at 1% per month or part of a month.

   • Calculated from the due date of instalment until the actual payment date.

3. Instances of Interest Charge:

   • Underpayment by 31st March:

     • If at least 90% of the estimated tax liability is not paid by 31st March, it is considered a "default" under Section 234B.

     • Interest applies to the entire unpaid advance tax amount.

   • Late Instalment Payment:

     • Interest is charged when any instalment is paid after its due date.

     • Calculated based on the amount of the late-paid instalment.

Illustration of Late Payment Interest on Advance Tax:

• If the estimated tax liability is Rs. 1,00,000 and only Rs. 80,000 is paid by 31st March:

  • Interest is charged on the remaining Rs. 20,000.

  • Calculation is done from 1st April until the actual payment date of Rs. 20,000.

Here is a table of the due dates for advance tax instalments and the interest rates for late payment:

What are the Exemptions on Advance Tax?

The following table shows some of the exemptions provided under the advance tax laws:

How to Calculate Advance Tax?

You can use an advance tax calculator online, or follow the below-mentioned easy steps to calculate your advance tax:

• Add up income from all sources (salary, business, rent, etc.) for the entire financial year (April 1st to March 31st).

• Subtract deductions and exemptions like medical insurance, housing loan interest, 87A rebate for individuals under old vs. new tax regime.

• Deduct total deductions and exemptions from your estimated income

• Decide on the old regime or new tax regime based on your deductions and tax slabs

• Use the current year's tax rates to calculate tax on your net taxable income based on your chosen regime.

• Subtract any tax already deducted from your salary, interest income, etc.

• The remaining amount after TDS deduction is your advance tax liability.

• Pay advance tax in installments throughout the year as per due dates (15% by June 15th, 45% by Sept 15th, 30% by Dec 15th, and remaining by March 15th).

In Summary

Advance Tax Payment under the Income Tax Act, 1961 is a proactive and essential financial practice that enables individuals and businesses to meet their tax obligations in a timely manner. By making periodic payments throughout the fiscal year, taxpayers not only ensure compliance with the law but also contribute to efficient revenue collection for the government. This approach not only helps in avoiding last-minute financial strain but also reflects a responsible and organized approach towards managing one's tax liabilities.