Advance Tax Payment: Understanding Advance Tax in India

Advance tax refers to the income tax that individuals pay in advance during the financial year, rather than waiting until the end of the year to pay it as self-assessment tax. The Income Tax Act sets specific dates throughout the year for these payments, also referred to as "pay as you earn."Section 208 of the Income Tax Act mandates that every individual whose estimated tax liability for the year is Rs.10,000 or more (after deducting TDS) must pay the tax in advance before the end of the financial year. These payments must be made in multiple installments, as prescribed by the Income Tax Act of 1961 . Note: Refer to the definition of person * define in income tax act 1961.

Where the tax liabilities of theperson exceed Rs10,000 after deducting TDS advance tax comes into play. If the advance tax is not paid within the due dates prescribed in income tax act, 1961, then interest would be payable on tax.

• If the person is not having income more than the basic exemption limit.
• If the person is having income more than the basic exemption limit but TDS has already been deducted from their income.
• If the person is having exempt income, then there is no need to pay advance tax.
• Senior citizen (an individual of 60 years or more) who does not have income from business is exempted from paying advance tax. Such exemption is irrespective of the ceiling of Rs 10,000.

Advance tax is a system where income tax is paid in advance for the income that will be earned in the current financial year. It is usually paid when the income is earned, but with the advance tax provision, the taxpayer is required to estimate their income for the whole year and pay tax on it at specified time intervals.The significance of advance tax cannot be overstated, as it helps taxpayers to better manage their finances and ensures that the government has a steady flow of revenue throughout the year. By paying advance tax, taxpayers can avoid the burden of paying a large sum of money at the end of the financial year, which can be particularly difficult for those with irregular income streams.Furthermore, it is essential for taxpayers to carefully evaluate their income and calculate the estimated tax on it to determine whether they need to pay advance tax. This process allows taxpayers to better understand their financial position and plan accordingly for the future.

To determine the liability for advance tax, the current year's estimated income must be calculated, and the applicable tax rates under the Income Tax Act 1961 must be applied. For non-corporate assesses: Tax is calculated according to income tax slabs. For corporate assesses: partnership firms, and LLPs, tax is calculated at a standard rate of 25% or 30% on net profit.

The Income Tax Act 1961 outlines the due dates for advance tax payments for different categories of taxpayers. DUE DATES FOR ADVANCE TAX FOR CORPORATE ASSESSEE

For Example: M/s XYZ Private limited estimated that the net profit for the current year will be 50000. Therefore, as per the provision of income tax act 1961total tax liability will be @25% of 500000 i.e., 125000 (which is clearly more than 10,000 so they need to pay the advance tax)Theentire 125000 has to be paid in advance but in installment, as follows: 1st installment by 15th June (15% of 125000) = 18750. 2nd installment by 15th September (45% of125000 – already paid i.e., 18750) = 37500. 3rd installment by15thDecember (75% of 125000 – already paid i.e. (18750+37500)) = 37500. 4th installment by 15th March (100% of 125000 - already paid i.e. (18750+37500+37500)) = 31250. So Total tax is paid in advance during the financial year. DUE DATES FOR ADVANCE TAX FOR NON-CORPORATE ASSESSEE.

For example: Mr. A suggested that his estimated total taxable income for the current year will be Rs 10,00,000. So, the tax will be calculated as per slab rate, hence the final tax liability of Mr. A would be 1,12,500.00 (which is more than 10,000 so the need to pay the tax in advance).The entire 1,12,500 has to be paid in advance but in installments, as follows: -1st installment by 15th September (30% of 1,12,500) = 33,750.2nd installment by 15thDecember (60% of 1,12,500 - already paid i.e., 33750) = 33,750.3rd installment by 15thMarch (100% of 1,12,500 - already paid i.e. (33750+33750)) = 45,000.So Total tax is paid in advance during the financial year. Note:Tax payers who choose a presumptive tax regime u/s 44AD or 44ADA are required to pay the whole advance tax liability in one i n s t a ll m e n t i . e . , o n o r b e f o r e t h e 1 5 t h o f M a r c h . H o w e v e r , a n y a m oun t d e p o s i t e d b y 3 1 s t M a r c h i s t r e a t e d a s a d v a n c e t a x o f t h a t f i n a n c i a l year.

If an individual fails to pay their tax liability in advance, or if they pay less than 90% of their advance tax liability during the financial year, they may be subject to the provisions of Section 234B and 234C of the Income Tax Act. According to these sections, the individual will be charged simple interest at a rate of 1% per month on the unpaid tax amount. Also Read: What Is the Interest Penalty on Non-Payment of Advance Tax? How Is It Calculated?

Advance tax is the tax which is mandatorily pay by the assessee whose estimated tax liability exceeds Rs 10,000.However,advance tax can be paid by two ways: ONLINE MODE:- Assessee can pay the amount advance tax via e-payment facility after visiting the official website of the Income Tax Department: Step 1: Select the applicable challan no i.e., challan no 280 for the payment of Advance Tax. S t e p 2: Select the ‘ type of payment & rsquo; as ‘ (100) Advance Tax ’ . Step3 : Select the period of tax for which advance taxis to be paid. Step4: Provide detail like Assessment Year, PAN , contact number, email address, address, and other necessary details etc. S t e p 5 :Then click on proceed. After you do that, the page will redirect you to a payment gateway. Step 6: Make the payment via net banking or debit card. Save a copy of the challan paid and it will be handy for filing the Income tax returns. OFFLINE MODE: Assessee may pay advance tax via challan (280) and select the “type of payment” as ‘(100) advance tax’ after filing the necessary detail like Assessment Year, Pan number, Period of tax, etc. at bank branches authorized by the Income Tax Department. Such authorized banks for income tax payment are State Bank of India, HDFC Bank, Indian Overseas Bank, ICICI Bank, Indian Bank, Allahabad Bank, Syndicate Bank, Axis Bank, Punjab National Bank, Punjab & Sindh Bank, and more. Also Read: Advance Tax Payment and How is it Calculated?

• Paying advance tax in a timely manner can help reduce the burden of last-minute hassle for individuals.
• Individuals who pay their taxes in advance are able to remain free from any tax-related pressures for the entire financial year.
• Advance tax payments can help individuals avoid becoming defaulters.
• The payment of advance tax helps the Indian government to increase its funds, which can be used to support those in need throughout the country.
• Advance tax payment can boost the speed of tax collection.

If an individual has overpaid their taxes and the Income Tax Department becomes aware of the overpayment, the excess amount of tax paid will be refunded. This refund will be processed after the individual has filed their income tax return for the relevant financial year, and before the end of the corresponding Assessment year.