A person earns income during the year and such income is assessed during the another. In other words, income of previous year (PY) 2021-22 is assessed during AY 2022-23. However, under the ‘Advance Tax’ concept, a person is required to pay income tax in respect of such income during the previous year itself on an estimated basis. Accordingly, for FY 2022-23, tax liability is payable in advance during FY 2022-23.
If you are salaried and believe the “Advance Tax” provision does not apply to you, you are mistaken. A person who receives a salary as their main source of income but also receives income from other sources like capital gains, rental income, interest from savings accounts, and so on may be subject to an advance tax liability.
When does advance tax become due?
Section 208 of Income Tax Act, 1961 states that every person whether salaried, self employed, businessman etc is required to pay an advance tax if his/her tax liability is Rs 10,000 or more.
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.
Senior Citizen who does not have any business Income are also exempted from the payment of Advance Tax.
Read Also: Correct Calculation of Income Tax
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 |
How is advance tax paid?
| Due Dates | Advance Tax Payable | No interest if tax paid | Who opt sec 44AD |
| On or before 15th June | Minimum 15% | Minimum 12% | 0% |
| On or before 15th September | Minimum 45% – Already Paid | Minimum 36% – Already Paid | 0% |
| On or before 15th December | Minimum 75% – Already Paid | — | 0% |
| On or before 15th March | Minimum 100% – Already Paid | — | Min. 100% |
Any tax paid till 31st March will be treated as advance tax under Income Tax.
Read Also: TDS Rate Chart for FY 2022-23/AY 2023-24 – Income Tax
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
If the tax is not paid as per the schedule given above, Interest @ 1% per month or part of the month is payable. In other words,
| 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 |
Payment in case of Capital Gains
Although Advance Tax is liable to be paid on all profits/incomes including Capital Gains, it is nearly impossible to estimate the capital gains that may occur in a year. In such cases, however, it is provided that if any such income arises after the due date of any installment, then the full amount of tax payable on such capital gain (after claiming exemption under section 54) shall be paid in the remaining due installments of Advance Tax. If the full amount of tax payable is so paid, then no interest will be levied on late payment.
Read Also: Income Tax: How to save capital gain on sale of house property
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