Advance Tax Payment : Eligibility, Calculations & Exemption

Advance tax is tax payable by individuals who have sources of income other than their salary. This is applicable to rent, capital gains from shares, fixed deposits, lottery winnings, etc. It can be paid online or through certain banks.

Advance tax is also known as ‘Pay as you earn’ scheme. The tax is payable if your tax liability exceeds Rs.10,000 in a financial year. The tax should be paid in the same year in which the income was received.

Union Budget 2021 Proposal to Facilitate easier Payment of Advance Tax on Dividend Income

In the Union Budget 2021 announced by the Finance Minister Nirmala Sitharaman on 1 February 2021, a proposal has been made to make the calculation and payment of advance tax on dividend income easier for taxpayers. This will help them to avoid paying interest on advance tax on dividend income which used to happen because of the complications in estimating the correct dividend income. The proposal intends to make compliance of the payment of dividend tax on par with capital gain tax. Capital gains tax is paid only after the taxpayer realizes the gains in their hands. The late payment of advance tax incurs interest and this can be avoided when the calculation becomes easier. This amendment is from 1 April 2021 and will apply to the assessment year 2021 to 2022 as well as the subsequent assessment years.

What is Advance Tax Payment?

Advance tax can be paid through tax payment challans at bank branches which are authorised by the Income tax department. It can be deposited in authorised banks such as ICICI Bank, Reserve bank of India, HDFC Bank, Syndicate Bank, Allahabad Bank, State Bank of India and more.

Another way of advance tax payment is by paying it through Online tax payment website of the Income Tax department or the National Securities Depository.

advance tax and payment in online
Advance Tax

Who is liable to pay Advance Tax?

The eligibility criteria you will have to fulfil in order to pay advance tax are:

  • Your tax liability should be Rs.10,000 and above.
  • You should be a salaried or a self-employed individual.
  • Income received via capital gains on shares.
  • Interest earned on fixed deposits.
  • Winnings earned from a lottery.
  • Rent or income earned from house property .

Installment of Advance Tax Payment Due Date for FY 2020-21

The last date to pay final installment of advance tax payment for Financial year 2020-21 is March 15th, 2021. On this date 100% of advance tax liability has to be paid by taxpayers.

Listed below is the advance tax schedule for self employed and businessmen

Installment Date Amount Payable
On or before September 15th Not less than 30% of the advance tax liability
On or before December 15th Not less than 60% of the advance tax liability
On or before March 15th 100% of tax liability

Advance Tax for Assessees (apart from the ones who are covered under section 44AD)

Payment Due Date Amount to be Paid as Advance Tax
On or before 15 June 15% of the Advance Tax
On or before 15 September 45% of the Advance Tax
On or before 15 December 75% of the Advance Tax
On or before 15 March 100% of the Advance Tax

How to Pay Advance Tax Online?

The advance tax can be paid online through the online facility offered by the Income Tax department. Listed below are the steps that need to be followed to make a successful online payment for advance tax.

  • Go to the official Government www.tin-nsdl.com.
  • Click "Services" - epayement: Pay Taxes Online
  • Select the right challan to pay your income tax ( Advance tax)
  • Fill in the correct details in the form. You’ll have to fill in details such as the right assessment year, address, phone number, email address, bank name, captcha code and other such important details.
  • Once you are done filling in the details, you’ll be redirected to the bank’s Net Banking page. The income to be paid should be rechecked in this page.
  • Next, you’ll get details of your payment including your challan number.
  • It is important to report your payment after you’ve made the payment. You can do so by adding an additional entry under the paid tax page.

Advance Tax Challan 280

Challan 280 allows people to pay their income tax online on the website of the Income Tax Department of India. On the website, people have to select this challan and fill the form and then use it to pay taxes online/office. If they want to pay the tax offline, they have to download Challan 280 form from the Income tax welcome, fill it and submit it at the bank.

How to Calculate Advance Tax Payment?

You can easily calculate how much advance tax you will have to pay by following the steps and pointers given below:

  • Step 1: Estimate how much income you earned in the financial year for which you are doing the advance tax calculation. These are the heads of income that should be taken into account for the income earned:
    • Income from any interest earned from FDs, savings account, etc.
    • Capital gains
    • Professional income
    • Rental income
    • Income of minors if it is added to that of the taxpayer
    • Any other income
  • Step 2: Add your salary to the figure above to arrive at the gross taxable income (while advance tax is not applicable on your salary, the sum total may change your tax slab which will change the tax liability further)
  • Step 3: Calculate the tax payable by applying the latest income tax slab that is applicable to you
  • Step 4: As per the TDS slab, deduct the TDS that is likely to get deducted or which has already been deducted

If your tax liability after deduction of TDS exceeds Rs.10,000, you are liable to pay advance tax.

Example of Advance Tax calculation

Assuming if your tax liability is Rs.1 lakh, then you will pay:

Payment Due Date Amount to be Paid as Advance Tax
On or before 15 June Rs.15,000
On or before 15 September Rs.45,000
On or before 15 December Rs.15,000
On or before 15 March Rs.25,000

Make sure you pay your tax on time to avoid any penalties.

Note: The advance tax will vary depending on the tax amount and the date on which you clear your tax.

Advance Tax Late Payment and Interest

If advance tax paid by you is less than 90% of the assessed tax, then you will be charged an interest of 1% every month under Section 234B of the Income Tax Act. The interest is computed as 1% interest on the defaulted amount for every month until the tax is paid off completely. The same interest penalty will be applicable if you don’t pay by the second or third deadline.

Under Section 234C of the Income Tax Act, if you do not pay your advance tax installment on time, then you will be charged an interest rate of 1%.

Exemption in Advance Tax Payments

  • Senior citizens aged 60 years and above are exempted from paying the advance tax.
  • Salaried individuals falling under TDS net are exempted from paying the advance tax. However, any earnings from sources such as interest, capital gains, rent and other non-salary income will attract advance tax.
  • If TDS deducted is more than the tax payable for the year, then one does not have to pay the advance tax.

Benefits of Paying Advance Tax

  • Advance tax helps in reducing stress of taxpayers. By paying tax in advance, taxpayers do not have to worry about money shortage or tax payments at the last moment.
  • It speeds up the tax collection process.
  • It increases government funds as the government can earn an interest on the collected amount.
  • Advance tax payment saves people from defaulting on their tax payments.
  • It helps businesses in managing their finances well and provides an idea of the income they have earned during the year.

Refund in Advance Tax Payment

At the end of the year, if the Income Tax Department finds out that you have paid more tax than you should have paid, then it will refund the excess amount. Taxpayers can claim refund by filling and submitting Form 30. They have to make the claim within a period of one year from the last year of the assessment year.

Advance Tax FAQs

  1. Is an NRI required to pay advance tax?
  2. If you are accruing income in excess of Rs.10,000 will be required to pay advance tax.

  3. I forgot to pay my fourth installment on 15 March. What should I do?
  4. In case you miss the deadline of paying your fourth installment on 15 March, you can make the payment by 31 March.

  5. What happens if advance tax paid is more than the total tax liability?
  6. If the advance tax paid is more than the total tax liability, the extra amount will be refunded. If the advance amount is more than 10% of the tax liability, then an interest of 6% p.a. will be paid by the IT Department.

  7. What is mode of payment of advance tax?
  8. You can pay your advance tax either by internet banking or through challan.

  9. Will any tax payable till 31 March treated as advance tax?
  10. Yes, any tax paid till 31 March will be considered as Advance Tax payment.

News About Advance Tax

  • Increase in advance tax collections to 146%

    The advance collection of personal income tax and corporation tax in the first quarter of the financial year had an increase of 146% compared to last year. There was a doubling of the overall net direct taxes as well compared to the previous year. In the first quarter, collections of taxes increased to Rs.28,780 crore against Rs 11,714 crore. From the advance tax, corporation tax amounted to Rs.18,358 crore while personal income tax amounted to Rs.10,422 crore. The first instalment of advance tax, which is 15% of the annual tax, has a deadline of 15 June. The collection of direct tax or the net of refunds increased by 100.4% to reach Rs.1.85 trillion as of 15 June 2021 in comparison to Rs.92,000 crore in the same period of the previous year. The amount of corporation tax was Rs.74,000 crore, net of refunds, while personal income tax came to Rs.1.11 trillion which also included security transaction tax. While the gross collection is 57% higher than last year at Rs.2.16 trillion, there is a reduction in tax refunds compared to last year at Rs.30,731 crore while it was Rs.45,063 crore last year. Mumbai's tax collection grew by approximately 96% to settle at Rs.55000 crore this year compared to Rs.28000 crore last year; Delhi had an increase of 77% to settle at Rs.23,000 crore this year compared to Rs.13,000 crore last year; Chennai increased by 100% to settle at Rs.12,000 crore while Pune increased by 167% to also reach Rs.12,000 crore this year.

    18 June 2021

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