A Beginner’s Guide to Understanding Advance Tax in India

Advance tax is a system of paying taxes in installments over the financial year, as per the provisions under the Income Tax Act, 1961 in India. This article aims to provide a complete understanding of advance tax , including its calculation, individuals liable to pay, advance tax slabs, exceptions, benefits of timely payment, and the convenience of online payment.

What is Advance Tax?

Advance tax refers to the payment of income tax by individuals, self-employed professionals, and businesses in instalments before the end of the financial year. It is a proactive method by the government to collect taxes upfront, rather than awaiting payment through the usual process of Tax Deducted at Source (TDS) from salaries or other sources of income.

Advance in the Income Tax Act

Sections 207 to 219 of the Act address the duty to pay advance tax before the deadline to avoid repercussions, while Sections 234A, 234B, and 234C address the fines that may be imposed for failure to do so. As previously stated, advance tax is paid in the year the individual obtains the income. This is why it is also referred to as the “pay as you earn scheme.”

How to Calculate Advance Tax?

To calculate advance tax, individuals need to estimate their annual taxable income and then compute the tax liability as per the applicable income tax slabs. The individual can divide the estimated tax liability into four equal instalments to be paid on specific due dates throughout the financial year.

Also, read: Advance Tax under Income Tax Act 1961

When is a person required to pay advance tax?

Section 208 requires the payment of advance tax whenever a taxpayer’s income tax liability exceeds Rs. 10,000. Assessee must compute one’s current income and pay the applicable advance tax. There is no duty to submit an estimate or statement of income to the Assessing Officer unless the Assessing Officer has given notice. Residents who do not have any income subject to taxation under the category “profits and gains of business or profession” and those aged 60 and more are the only ones free from paying advance tax. 

The advance tax slabs are progressive, that the tax rate increases as the income increases, ensuring that individuals with higher incomes contribute more in taxes.

• In case of commercial purposes or Business: For taxpayers who chose the presumptive taxation plan under Section 44AD, the advance tax must be paid in full in one instalment on or before March 15. They can also elect to pay all owed taxes before March 31. Small businesses are eligible for the program, which estimates yearly revenues of 8% of turnover or gross revenues. If the gross receipts/turnover were received by account payee bank draft, account payee check, or electronic clearing system, the business revenue should be approximated at 6% of the turnover. Following that, the amount decided becomes the business’s ultimate taxable income, and the advance tax must be paid on this amount.

• In the case of Professionals : For independent professions such as architects, lawyers, doctors, etc. presumptive taxation can apply and it is expressed in the section 44ADA. They must pay their total advance tax liability in one instalment by the March 15th deadline. They can also pay the entire amount by March 31.

Who is not Liable to Pay Advance Tax?

Certain categories of taxpayers are not liable for paying advance tax. They include senior citizens (aged 60 years or more) who don’t have any income from business or profession and do not fall under the scope of the presumptive taxation scheme.

Benefits of Advance Tax Payment

• Avoidance of Interest: Paying advance tax prevents the individual from incurring interest penalties under sections 234B and 234C of the Income Tax Act.

• Better Financial Planning : Paying taxes in instalments allows individuals to better manage their cash flow and ensures they are prepared for the tax liability at the end of the financial year.

• Reduction in Tax Burden: By paying taxes in advance, individuals can distribute the tax liability throughout the year, reducing the burden of a lump sum payment.

Advance Tax Payment Online

If you do not prefer to pay your advance taxes in person, the government of India provides an option for taxpayers to pay their advance taxes online. An individual must follow the following procedure:

• On the Income Tax Department’s website, look for an e-payment option.
• Then, to make an advance tax payment, select the appropriate ‘Form’.
• Following that, select the appropriate code option for advance tax. In this scenario, the appropriate code number is 100.
• Next is to fill out an individual’s information, such as PAN, name, email address, mobile number, etc.
• After finishing these steps, you have to select the ‘Proceed’ tab.
• The next step is the payment.
• Finally, the individual will receive a payment receipt known as “Challan 280” in a new browser tab. It is suggested that a copy of the payment receipt be saved because it will be required for completing the Income Tax Return.

End Note

Advance tax is a vital aspect of the income tax system in India, ensuring timely tax collections and supporting the government’s revenue generation for public welfare initiatives. Understanding the provisions of the Income Tax Act, calculating advance tax, identifying who is liable to pay, exploring the benefits, and utilizing the online payment facility empowers taxpayers to fulfil their tax obligations efficiently. By complying with advance tax requirements, taxpayers contribute to the stability and development of the nation.

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