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Guide To Understanding Advance Tax

The benefit of paying the advance tax as per the schedule is of course primarily that you avoid the payment of the 1 per cent monthly fine

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Advance taxes are levied under the Indian taxation laws as they enable the government to receive tax income during the year rather than just at the end of the financial year. Businessmen, salaried individuals, self-employed people and other taxpayers are liable to pay advance tax depending on their income.

Put in simple terms, advance tax is exactly what it literally means - tax paid in advance. Those individuals who are required to pay additional annual taxes in excess of Rs 10,000 after adjusting the taxes already deducted at source are expected to pay advance tax. Also, unlike other taxes which are paid at the end of the financial year, these are to be paid as they accrue - thus they are also termed, 'pay-as-you-earn' tax.

Who is expected to pay advance tax?
Not all individuals are expected to pay advance tax, in fact, in the case of salaried individuals as their employer is already deducting TDS, they are not expected to pay advance tax. Advance tax only applies when you have any additional source of income other than salary, thus any income which accrues through capital gains, interest on investments, lottery, rent on property or self-employed individuals and those who have their own business and whose tax liability crosses Rs 10,000 per year become subject to advance tax. By this same logic, companies and corporates also need to pay advance tax. Non-resident Indians (NRIs) are also required to pay advance tax on any income that accrues/earned in India.

However, resident senior citizens, above 60 years of age, are exempt from the same provided their source of income is not from any business.

What happens if you neglect to pay advance tax?
Failure to pay advance tax on time as per the government schedule will result in a fine being imposed on the individual. This will be charged at the rate of 1 per cent simple interest a month, which equates to 12 per cent per year.

In the case that an individual has paid an extra amount of tax, that person will be entitled to a refund and an interest on the excess amount. Though, the interest on the refunded amount is only 0.5 per cent per month or 6 per cent per year.

What is the schedule to file advance tax?
The payment of advance tax is split up into different installments. Thus, the payment schedule for all the taxpayers is 15 per cent, 45 per cent, 75 per cent and 100 per cent (cumulative) of income tax payable on the full financial year's income to be paid by 15th June, 15th September, 15th December and 15th March, respectively. Earlier in the case of individuals it was 30 per cent, 60 per cent and 100 per cent (cumulatively) of tax payable on the full fiscal's income by 15 September, 15 December and 15 March, respectively. However, the 2016 budget has proposed to remove the difference in the payment schedules of companies and individuals have a common schedule instead.

How to file advance tax?
Advance tax is payable at any of the banks which have been empanelled by the Income Tax Department. There are close to 30 banks authorized to accept the Income Tax Payments (including advance taxes) these banks include the, State Bank of India, ICICI Bank, HDFC Bank, Indian Overseas Bank, Indian Bank, and other scheduled banks. Thus, you can approach any of the branches of these banks for depositing the advance taxes. There is also an on-line payment option through the I-T department or the National Securities Depository site. To pay taxes online using net banking you can visit https://onlineservices.tin.nsdl.com/etaxnew/tdsnontds.jsp

The benefit of paying the advance tax as per the schedule is of course primarily that you avoid the payment of the 1 per cent monthly fine. Also, paying in installments reduces the burden of paying the entire amount of tax all at once.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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taxes advance tax personal finance income tax

Vaibhav Sankla

Vaibhav Sankla is the Director of Strategy and Business Development at H&R Block India. He has more than 15 years’ experience in taxation and accounting

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