Advance Tax: If the Income Tax Liability of any taxpayer is more than Rs. 10,000 in a financial year, then he is liable to pay such tax in installments during the year itself rather than paying this tax at the end of the year. This tax which is payable during the year is called “Advance Tax” or “pay as you earn tax” as the tax is liable to be paid at the time the income is earned i.e. during the year itself rather than paying this tax at the end of the year.
Advance Tax receipts help the Govt. to receive a constant flow of tax receipts throughout the year so that the Govt can incur its expenses timely rather than receiving all tax payments at the end of the year. Advance Tax is liable to be paid by all assesses like Salaried, Self Employed, Businessman etc. before the filing of Income Tax Return. An Income Tax Return cannot be filed till the income tax is fully paid.
For Individuals with Salary as the sole 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 Advance Tax payable. Senior Citizens not having any Business Income are also exempted from the payment of Advance Tax
What are the benefit of Advance Tax?
It reduces the burden of tax payment. It helps in mitigating stress that a taxpayer may undergo while making tax payment at the end of fiscal year. It saves people from failing to make their tax payments. It helps in raising government funds as the government receives interest on the tax collected.
1. Liability for payment of advance tax
The obligation to pay advance tax arises in every case where the advance tax payable is Rs. 10,000 or more
Due Dates of Advance Tax (section 211)
|Due date of installment in the relevant previous year||Other than 44AD or 44 ADA||Eligible assesse carrying on eligible business under section 44 AD or 44 ADA|
|On or before June 15||15% of such advance tax|
|On or before September 15||45% of such advance tax payable|
|On or before December 15||75% of such advance tax payable|
|On or before March 15||100% of advance tax payable||100% of advance tax payable|
2. No Advance Tax
Ans. A resident senior citizen(i.e., an individual of the age of 60 years or above during the financial year) not having any income from business or profession is not liable to pay advance tax.
Interest on Delayed Payment of Advance Tax under section 234C
If shortfall in payment of advance tax is on account of under estimation or failure in estimation of income of the nature referred to insert 115BBDA the interest under section 234C shall not be levied
Keynotes to Remember
- a. Any amount paid under section 211 on or before 31st March of the previous year, shall be treated as advance tax paid during the fi nancial year.
- b. Provisions of advance tax is not applicable in the following cases:- Where an assesse is a senior citizen and does not have any income chargeable under the head “Profi ts and gains of business or profession”. In other words, senior citizen not having business income is not liable to pay advance tax.
- c. Every income including capital gain, winning from lotteries, etc. is subject to advance tax. However, it is not possible to estimate capital gain or casual gain, therefore, where the assesse has paid the whole of the amount of tax payable in respect of such income:
- As part of the remaining installments of advance tax which were due; or
- Where no installments were due, by March 15 of the fi nancial year immediately preceding the assessment year, Then it is deemed that all the provisions are complied.
- d. If the last day for payment of any instalment of advance tax is a day on which the receiving bank is closed the assesse can make the payment on the next working day. In such case, the mandatory interest leviable under section 234B and 234C would not be charged (Circular no. 676 dt. 14.1.1994)
- e. While calculating advance tax, net agricultural income shall also be taken into consideration for computing tax liability
The advance on certain oncome can be paid after its occurrence as it cannot be estimated:
- Long term capital gain
- Casual Income
- Dividend Income chargeable under section 115BBDA.
Frequently Asked Questions
Is there any compliance if an assessee revises its estimate of income for advance tax?
Ans. An assessee can revise the estimation of income and pay the taxes accordingly without any requirement of filing the estimation of income with the department.
Can the estimate of income be revised for the purpose of advance tax?
Ans. In case the assesee wants to revise the estimate of income after making payment of first/ second instalment of advance tax, the assesse can revise the remaining instalment of advance tax in accordance with his revised estimate of current income and pay the advance tax accordingly.
What will be the due date for the payment of advance tax if the same is payable by virtue of an order from the Assessing Officer/ Income Tax Officer?
Ans. Where advance tax is payable due to the notice of demand issued by Assessing Officer then whole or part of the advance tax is payable in the remaining instalments, i.e., instalments due during the financial year after the date of the notice.
Who is not required to pay Advance tax?
Ans. A resident senior citizen(i.e., an individual of the age of 60 years or above during the financial year) not having any income from business or profession is not liable to pay 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.
Q.5 Can I claim the deduction of Advance tax payments against my profits?
Ans. Advance Tax is not an expense.
- It is considered as an asset and adjusted against one’s tax liabilities at the time of fi nalization of the Balance Sheet.
- It is a charge on income and not considered as an expenditure.
- It is shown under Loans and Advances in the Balance Sheet.
Q.6 How do advance tax paid get reflected in Form 26AS ?
Ans. Once the Advance Tax is paid, it will be reflected on assessee’s Form 26AS within 3-4 working days of making the payment.
- The banks upload challan details to TIN in 3 working days after the realization of the tax payment online.
- After the bank uploads the details of self-assessment/ advance tax to TIN, it is automatically posted into assessee’s Form 26AS.
Q.7 What should we do if the bank is closed on the last day for payment of advance tax?
Ans. Any taxes paid till 31st March will be treated as advance tax.
If the last day for the payment of advance tax is the day on which the banks are closed, then one should pay the advance tax on the immediately following working day and no interest shall be charged on such payments of advance tax.
Q.8 Does credit of TDS allowed while calculating advance tax?
Ans. As per section 208 of the income-tax Act, 1961, every person whose estimated tax liability for the year is INR 10,000 or more, after TDS (taxes deducted at source), shall pay advance tax.
Therefore, credit of TDS is to be taken while calculating the advance tax liability.
However, if the amount is given or credited by payer without deduction of tax then the benefit of TDS cannot be given while calculating the advance tax liability.
3. Computation of advance tax:
- (a) An assessee has to estimate his current income and pay advance tax thereon. He need not submit any estimate or statement of income to the Assessing Officer (A.O), except where he has been served with notice by the Assessing Officer.
- (b) The A.O, if he is of the opinion that assessee is liable to pay advance tax, can serve an order under section 210(3) requiring the assessee to pay advance tax.
- (c) The above order can be served by the A.O at any time during the financial year but not later than the last date of February.
- (d) If the assessee feels that his own estimate of advance tax payable would be less than the one sent by the Assessing Officer, he can file estimate of his current income and advance tax payable thereon.
- (e) In all cases, the tax calculated shall be reduced by the amount of tax deducted /collected at sources.