As a responsible citizen of the country, it is essential that you pay your taxes on time. Now, while it is a given fact that the income generated in a financial year is assessed in the upcoming year, often referred to as the Assessment year, the taxes get paid before the financial year ends via advance tax provisions or TDS (Tax Deduction at Source).

With the advance tax system, the taxpayers need to pay a share of their taxes during the financial year without waiting for the year ending period. This system has been in function to ensure that the government can receive revenue during the year and continue its expenditures. 

Dive in to know its significant aspects and learn how to make the most out of this tax regime.

Understanding Advance Tax Payment

Advance tax payment, often referred to as the pay-as-you-earn scheme, is a system given in the Income Tax laws wherein the taxpayers need to pay their tax liabilities before a fiscal year ends. 

When the tax liability of a person is more than Rs. 10,000 is a given year; then, he needs to pay taxes in the same year he earns money through installments as per the due dates set by the Income Tax Department. 

In simpler words, the taxpayer has to estimate his income beforehand and then pay the taxes. For any increase or decrease of the estimated revenue, the advance tax that needs to be paid in installments gets adjusted accordingly.

Generally, the first installment, i.e., nearly 15% of the tax liability, is paid within the 15th of June. The next installment is scheduled on the 15th of September, where one needs to pay 45% of the tax payment, and the last installment, i.e., 75% of the tax liability, should be paid by the 15th of March.

One must note that the amount that one needs to pay as advance tax varies according to the taxpayer’s category—moreover, the NRIs whose tax liability is more than Rs. 10,000 in a given financial year, also come under the advance tax payment regime.


Who is Liable to Pay Advance Tax?

Any individual whose estimated tax liability is more than Rs. 10,000 in a fiscal year, after the adjustment of the TDS, needs to pay advance tax. This tax regime pertains to all categories of taxpayers, such as professionals, salaried employees, freelancers, and senior citizens. Let’s study these categories in detail.

For professionals, freelancers, and salaried individuals

As mentioned earlier, any self-employed individual must pay advance tax if the total tax liability in a given year is Rs. 10,000. However, there are some conditions for this. 

First, salaried employees who get their salary after the TDS deduction do not need to pay advance tax. Second, the senior citizens who do not earn through a business or via any profession are free from paying advance tax.

For presumptive income through business

A taxpayer who opts for the presumptive taxation scheme under Section 44AD has to pay the total advance tax liability in a single installment on or before the 15th of March. However, if not within the 15th of March, the date can be exceeded by the 31st of March.

For presumptive earnings through a profession

Independent professionals such as advocates, doctors, engineers, etc. who opt for the presumptive taxation scheme come under the purview of Section 44ADA. 

For the ones falling under this category, the total tax liability has to be paid in a single installment on or before the 15th of March. Nonetheless, it can be extended until the 31st of March. 

How is Advance Tax Calculated?

An individual taxpayer can calculate his advance tax liability with the help of the following steps:

  • Firstly, one needs to estimate his income for a given year as advance tax is computed based on estimated income. While computing, various heads of income should be considered, such as professional income, interest, capital gains, rent, etc. 
  • After you have ascertained the estimated income, add the salary amount to calculate the gross taxable earning. However, note that the advance tax will not be applicable on salary. The total earnings from salary and non-salaried sources may cause modifications in the applicable slab rate and, therefore, may affect the present tax liability.
  • Now, calculate the tax payable as per the latest income tax slab applicable.
  • The next step is to subtract the TDS amount that has been deducted or the TDS that will be deducted as per the applicable tax slabs.
  • After calculation, if the tax amount post TDS calculation exceeds Rs. 10, 000, you need to pay advance tax.

Note: There will be times when you will not estimate the yearly income correctly, and at the end of the year, you may find that you have earned more than the planned amount. In such a case, the advance tax that you have paid will be lower than the required amount, and therefore, you will be required to pay the penalty. 

On the other hand, if you have paid more than the total tax liability, you can claim a refund and get the extra amount back. The rebate can be claimed by submitting Form 30.

To ensure that a taxpayer doesn’t have to go through any unnecessary hassles, an online advance tax calculator is available on the Income Tax Department’s website.

The Process Associated with Online Advance Tax Payment

Nowadays, advance tax payments can be made online with the help of some simple steps. These steps are:

  • Visit the Income Tax Department’s online portal for tax payment.
  • Opt the applicable Challan number
  • Now, set the payment type as ‘(100) Advance Tax’.
  • Add necessary details such as an address, assessment year, mode of payment, etc.
  • Select the ‘Proceed’ button and get the transaction done when you get redirected to the payment portal
  • Once done, do not forget to save the payment challan as it will be required when you file I.T returns.

The taxpayers who do not feel comfortable using the online advance tax payment method can use the offline facility. In the offline process, the individual will have to submit the required Challan at the bank branches, authorized by the I.T Department.

Important Dates Regarding Advance Tax Payment

It is of utmost importance that one gets the advance tax payment done on or before the government’s due date to avoid penalties at the time of annual tax filing. Therefore, let’s look at the due dates set for advance tax payment for the FY 2019-20 and AY 2020-21.

Advance tax due dates for self-employed individuals and business owners

Due Date for advance tax payment Set Instalment Amount
On or before the 15th of June At least 15% of advance tax liability
On or before the 15th of September At least 45% of advance tax liability
On or before the 15th of December At least 75% of advance tax liability
On or before the 15th of March Complete (100%) advance tax liability

Consequences of Delaying Advance Tax Payment

The taxpayers must note that delaying the advance tax payment or paying less than the required amount on the first due date will attract a penalty at the rate of 1% interest on the rest tax amount for every month. 

Moreover, this penalty will also be applicable if the taxpayers fail to pay the specified amount by the next due date. In this case, if one fails to get the third or the last installment paid, he will have to pay 1% S.I on the payable tax liability for every month until the entire amount is paid. 

Key Takeaway

If one falls in the category set by the Income Tax Department, it is mandatory to pay the advance tax on time. 

Moreover, it will also be prudent on your part if you calculate the estimated income correctly and avoid any issues that might arise in the future due to incorrect payment of taxes. To make sure you never go wrong in the tax calculations, seek help from FinGurus today.