Normally, for tax liability less than Rs 10,000 (US$145), the income tax for a financial year is paid in the assessment year (AY).
Under the advance tax method, tax liability is distributed in installments within the same financial year. Therefore, an 'estimated tax' must be paid in installments throughout the same financial year.
In simple terms, it is a 'pay as you earn' tax.
For example, for FY 2018-19 and FY 2019-20, the due dates for advance tax (for both individuals and corporates) are:
- On or before June 15 – 15 percent of estimated advance tax;
- On or before September 15 – 45 percent of total estimated advance tax;
- On or before December 15 – 75 percent of total estimated advance tax; and,
- On or before March 15 – 100 percent of total estimated advance tax.
For taxpayers showing business income and opting for the Presumptive Taxation Scheme (Section 44AD and 44ADA, Income-tax Act, 1961), it is:
- On or before March 15 – 100 percent of estimated advance tax.
If the total tax paid exceeds the actual tax liability – computed when filing the final tax returns at the end of the year – the excess amount is refundable.
The advanced income tax is calculated in the same manner as normal income tax and the same tax slabs apply to respective taxpayers. However, the method of filing advance income tax is different.
Who pays advance income tax in India?
Advance income tax applies to all taxpayers, whether salaried, freelancers, or businesses.
Senior citizens (60 years or older) who do not run a business are exempt from paying advance tax and may file returns normally at the end of the year.
Businesses opting for the Presumptive Taxation Scheme are, however, exempt from paying advance tax in installments; instead, one advance tax payment is made on or before March 15.
Professionals under the presumptive tax scheme must pay advance tax in installments.
The penalty for not paying advance tax is explained under Section 234B of the Income-tax Act. Interest of one percent per month is paid on the estimated installment value, or shortage in payment, if advance tax is not paid as per the schedule.
Further, an interest of one percent is payable if 90 percent of the tax is not paid before the end of the financial year.
A penalty is also applied, if during the normal tax filing process at the end of the financial year, advance tax is not paid when the liability is greater than Rs 10,000 (US$145).
The penalty is levied from April 1 of the relevant financial year till the date of determination of income under Section 143(1) or date of regular assessment.
It must be clarified that penalty will not be levied if there is an increase in the taxpayer's tax liability due to capital gains, income from lotteries or a new business, or dividends income referred to in Section 115BBDA of the Income-tax Act. The taxpayer would then be expected to pay the advance tax in the subsequent installment or in case there is no installment pending, then by March 31.
Steps to file your advance tax
- Calculate your estimated tax liability using the tax slabs, deductions, and surcharge as normal for the coming financial year;
- On the government's tax information network, select Challan No. 280 (Payment of Income Tax and Corporate Tax);
- On the e-payment page, fill the correct applicable tax type, PAN details, and choose the assessment year (for example, for FY 2019-20 it is AY 2020-21);
- Fill in all the required details and chose '(100) advance tax' option for payment;
- Make the advance tax payment through net banking or debit card; and,
- A challan (receipt) with a specific number will be generated. This needs to be quoted on future tax filings for the financial year.
This article was originally published on August 1, 2018 and has been updated on November 22, 2019.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.