Third installment of Advance Tax: Many taxpayers are unaware of their potential advance tax liabilities and whether they should give it any thought. This is particularly true for salaried workers who think their employer will take care of their tax obligations and they won’t need to do anything else. In actuality, though, there are situations in which you might be liable for advance taxes even if you are a salaried individual and your employer is deducting taxes at source (TDS). For all the details, continue reading.
On December 15, 2023, the third advance tax payment installment for the fiscal year 2023–2024 is due and must be paid.
What is Advance tax?
When the Tax is paid in the same year in which the Income is earned, it is known as ‘Advance Tax’, that means ‘pay as you earn’. However, in the cases where the advance tax is not paid on time and tax is paid in the next financial year – it is called Self Assessment Tax.
Who is liable to pay Advance tax?
Advance tax is applicable if, after deducting TDS, an individual’s tax liability exceeds Rs 10,000. The I-T Act stipulates that interest on advance taxes is due if they are not paid by the deadline.
According to Section 208 of the Income Tax Act, the tax liability of any individual, firm, company, etc. that has an estimated tax liability of Rs. 10,000 or more for the year after TDS (i.e., TDS that is deducted for the person by its payers/clients/banks, etc.) must be paid in advance during the same financial year. Payment in Installments must be made to pay this tax.
For Individuals with salary as the only source of income, Advance Tax would be taken care of by the TDS deducted by the employer at the time of payment of salaries as reflected in Form 16 and thus there would hardly be any Tax payable. However, if they don’t disclose all the incomes to their employer, then they need to take care for the advance tax.
Read also: Income Tax: Taxpayers get intimation for paying lower advance tax
Who is not required to pay Advance tax?
A resident senior citizen (someone who turns 60 years old or older during the fiscal year) who does not receive any income from a business or occupation is exempt from paying advance tax.
Taxpayer who opted for presumptive taxation scheme of section 44AD or section 44ADA is liable to pay 100% of advance tax by 15th March.
Advance tax due dates
| Due Date | Advance tax payment percentage |
|---|---|
| On or before June 15 | 15% of advance tax |
| On or before September 15 | 45% of advance tax (-) advance tax already paid |
| On or before December 15 | 75% of advance tax (-) advance tax already paid |
| On or before March 15 | 100% of advance tax (-) advance tax already paid |
The income tax Act of 1961 requires assessees covered by sections 44AD and 44ADA (under the presumptive taxation scheme) to pay advance tax by March 15th at the latest.
How to compute advance tax on capital gains income?
On total income, which includes capital gains and casual income (such as winnings from lotteries and crossword puzzles), advance tax is due.
That being said, it is practically impossible to project future income from capital gains and other sources of income. Consequently, under such circumstances, the law stipulates that the tax computed on capital gain and casual income must be paid in the remaining advance tax installments that are due if any such income occurs after the due date of any installment. There is no interest charged for late payments if the full amount of tax is paid in this manner.
In case of advance tax, when is assessee considered as assesse-in-default??
If an assessee fails to pay the advance tax within the stipulated timeframe after receiving the order from the income-tax officer, or fails to file an intimation in Form 28A prior to the instalment due date, they will be deemed to be in default for the purposes of advance tax.
Choose the right assessment year while paying tax
The advance tax is payable both online and offline. Use tax payment challans (challan no. 280) at bank branches that have been approved by the Income Tax Department to make an offline payment. To make an online payment, visit www.incometaxindia.gov.in, the website of the income tax department, and select e-Pay taxes. After that, you’ll be taken to the website of National Securities Depository Ltd. (NSDL). After selecting challan number 280, provide the necessary information, and complete the payment.
Aside from anything else, be sure to pay attention to the details in the challan when paying taxes. For example, choose Corporation Tax/Income-tax (other than companies) under the head of payment if you are an individual taxpayer or a company. Likewise, enter the accurate tax payment amount and method.
Read also: Advance tax Payment under section 44AD / 44ADA
Choosing the incorrect Assessment Year (AY) is the most frequent mistake made by taxpayers. Keep in mind that the applicable AY for the current fiscal year, 2022–2023 is 2023–24. Thus, be sure to choose the AY appropriately. Completing the Permanent Account Number (PAN) is also required. Once all the information has been entered, it will appear on the screen. You should verify this information before completing the payment.
The advance tax will appear on the assessee’s Form 26AS three to four working days after the payment is made.
How to calculate Advance Tax?
Section 209 requires an assessee to estimate his current year income to arrive at the Tax liability for the current year. Calculation of Advance tax liability is as follows:
| Tax liability for the current year (arrived on the basis of estimated income) | XXXX |
| Less: TDS/TCS for the current year only if actually deducted /collected | (XXXX) |
| Advance Tax liability | XXXX |
What is the Interest on Late Payment/ Non- Payment of Advance Tax?
Interest under section 234B
Interest @1% is payable if 90% of the tax is not paid before the end of the financial year i.e. for Default in Payment of Advance Tax.
Interest under section 234C
| First installment : Interest is payable if advance tax paid till 15th June of PY is less than 12% of the advance tax liability |
Rate : 1% per month Time period : 3 months Amount : 15% of Advance Tax liability minus advance tax actually paid till 15th June |
| Second installment : Interest is payable if advance tax paid till 15th September of PY is less than 36% of the advance tax liability |
Rate : 1% pm Time period : 3 months Amount : 45% of Advance Tax liability minus advance tax actually paid till 15th September |
| Third installment : Interest is payable if advance tax paid till 15th December of PY is less than 75% of Advance Tax liability |
Rate : 1% pm Time period : 3 months Amount : 75% of Advance Tax liability minus advance tax actually paid till 15th December |
| Last installment : Interest is payable if advance tax paid till 15th March of PY is less than 100% of Advance Tax liability |
Rate : 1% pm Time period : 1 month Amount : 100% of Advance Tax liability minus advance tax actually paid till 15th March |
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