Every Indian citizen is responsible to pay taxes if their income exceeds a specified limit. Paying off tax well in advance reduces an individual’s financial burden. Moreover, it allows the government to get the funds required for its various developmental and infrastructure projects.
That is why the Income Tax Act of 1961, introduced provisions for advance tax payments.
Let us explore some of the basic details about advance tax payment:
Advance Tax – What is it?
The amount of income tax a person has to pay in advance instead of lump-sum payments at the end of a year is referred to as an advance tax.
This tax is also known as a ‘pay as you earn’ tax. People must make advance tax payments in instalments on the dates set by the IT Department of India.
As per Section 208 of Income Tax Act (ITA), advance tax has to be paid only when the tax liability exceeds Rs.10,000 in a financial year.
Those who do not pay advance tax in time are liable to pay interest on the outstanding tax.
In the first quarter of the ongoing fiscal year, companies paid Rs. 78,783 crores in advance tax payments. According to financial experts, the rise in advance tax collections indicates the presence of a strong economy. Furthermore, it also reflects expectations of better corporate performance.
Who is liable to make Advance Tax Payments?
The details of people who must make advance tax payments are as follows:
Salaried People, Businessmen and Freelancers
If one’s tax liability exceeds Rs 10,000 in a particular financial year, then advance tax has to be paid. This rule is applicable to freelancers, salaried individuals and business people. However, there are some exceptions as well. For instance, senior citizens not running businesses do not have to pay advance tax.
Presumptive Income for People in Businesses
Those who have chosen presumptive taxation as per Section 44AD are required to make 100% of the stipulated advance tax payment in a single instalment by 15th March. However, if these taxpayers fail to pay it in time, they can pay off all their taxes by 31st March.
This is a taxation facility where business owners or individuals involved in certain professions can pay taxes without calculating their actual income. The advance tax must be calculated at 6% or 8% of business receipts for a financial year. Furthermore, the advance tax depends on the mode of these receipts.
Presumptive Income for People in Specified Professions
Section 44ADA of the ITA states the provisions of presumptive income for independent professionals. Some professionals who follow the presumptive scheme rules of this Section are lawyers, doctors, architects etc. They are required to pay off their entire tax liability by 15th March. If they are unable to do so, they need to pay it by 31st March.
Benefits of Paying Advance Tax
Listed below are the critical advantages of advance tax payments:
- First, it helps people avoid failing their tax payments and incurring penalties.
- People will not undergo financial stress if they pay taxes in advance.
- Since governments receive interest on the tax collected, advance tax payments help GoI raise funds.
Due Dates of Advance Tax Payments
The table below provides the due dates for advance tax payments for both corporates and individuals:
|Due Date of Instalment||Amount of Advance Tax|
|By 15th June||15% of advance tax|
|By 15th September||45% of advance tax minus previous instalment|
|By 15th December||75% of advance tax minus previous instalment|
|By 15th March||100% of advance tax minus previous instalment|
How to Calculate Advance Tax?
The advance tax calculator on the official web portal of the Income Tax Department can help you calculate your tax dues. Just fill in the various required fields on the calculator with your details to compute your taxes.
Some of these fields include – the type of taxpayer, net taxable income, surcharge, whether the organisation has opted and qualifies under section 115BA or 115BAA or 115BAB, etc.
Given below is a step-by-step guide for the manual calculation of advance tax payments:
Step 1: Estimate your total annual income from all sources.
Step 2: Deduct expenses from your total income. This can include your medical insurance premiums, travel expenses, phone costs, etc.
Step 3: Add all the income you have received apart from salaries, such as house rent, interest from FDs, earnings from the lottery etc.
Step 4: If the amount exceeds Rs 10,000 you must pay advance tax.
Advance Tax Late Payment and Interest
If an individual pays Advance Tax after the due date, he/she will be liable to pay interest under sections 234B and 234C of the Income Tax Act, 1961.
Under section 234B of the act, if an assessee has not paid the advance tax by the due date then he/she will be liable to pay simple interest at the rate of 1% per month or part of the month on the amount of tax which remains unpaid.
Under section 234C of the act, in case the total tax liability of an assessee is not paid on or before the due date then he/she will be liable to pay interest at the rate of 1.5% per month or part of the month on the amount of tax which remains unpaid. The penalty for late payment of advance tax will be levied from the day immediately following the due date till the date of payment of the tax dues.
Exemption in Advance Tax Payments in India
In India, there are several exemptions available for advance tax payments. These include:
1. Taxpayers who are aged 65 years or more can claim a deduction of up to Rs.50,000 from their taxable income.
2. Individuals who are physically disabled can claim a deduction of up to Rs.50,000 from their taxable income.
3. Taxpayers who have invested in certain specified instruments such as Public Provident Fund (PPF), National Savings Certificates (NSC), etc., can claim a deduction of up to Rs.1.5 lakhs from their taxable income.
4. Individuals who have made donations to certain charitable institutions or funds approved by the government can claim a deduction of up to 10% of their gross total income (before any deductions) from their taxable income.
5. Taxpayers who have invested in certain specified equity–linked savings schemes (ELSS) can claim a deduction of up to Rs.1.5 lakhs from their taxable income.
6. Individuals who have invested in certain specified medical insurance or pension schemes can claim a deduction of up to Rs.1.5 lakhs from their taxable income.
7. Taxpayers who have invested in certain specified housing loan interest payments can claim a deduction of up to Rs.2 lakhs from their taxable income.
Refund in Advance Tax Payment
In India, tax payments can be paid in advance and then refunded at a later date. However, this is only applicable if the taxpayer has already paid the due amount of tax for a particular period and the excess amount paid is refundable.
To get the refund of such advance tax payments, the taxpayer must file his/her income tax return for that particular period in which the advance tax was paid. The refund will be processed after the assessment of the income tax return is completed.
The refund amount will be credited to the taxpayer‘s bank account. It is important to note that the taxpayer must provide the correct details of the bank account to the Income Tax Department to ensure the refund is credited to the correct account.
How to Pay Advance Tax Online with RazorpayX ?
Manual data entries and buggy government portals bogging you down?
Well, RazorpayX Tax Payment is here to solve it all.
Follow along and learn how to pay advance tax online with RazorpayX, in just 4 simple steps.
Step 1: Set up your advance tax by logging into your RazorpayX dashboard, selecting “tax payments” from the menu and heading to the “Advance Tax” tab. Then, enter your basic business details.
Step 2: To make the payment, click on “ + Advance Tax” in the Advance Tax tab and confirm your details in the “Adding Filing Details” window. Click “Next” to proceed.
Step 3: Add the amount of tax that you need to pay. You can input a detailed break-up of the tax amount payable using the “Show all fields” menu.
Step 4: Click on “Pay Now” to proceed with the payment, or “Save Payment” in case you want to get back to the payment later.
- If you want to “Pay Now”, just enter the OTP and complete the payment.
- If you select “Save Payment” then enter the OTP for verification, and click CREATE PAYOUT to save the payout. The payout is created and can be seen on the Advance Tax screen.
Done? now you can view the challan, too.
RazorpayX offers automated tax payments that are specially customised for start-ups. Moreover, it helps people make advance tax payments on time. It offers a single dashboard for advance tax, GST and TDS to facilitate smooth and seamless payments.
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With platforms like RazorpayX, you can supercharge and power your business banking like never before.
Frequently Asked Questions
Do NRIs have to pay advance tax?
A non-resident Indian who earns the benefit of income accruing in India must make advance tax payments if the amount exceeds ₹10,000.
What will happen if I do not pay advance tax?
If someone fails in making advance tax payments, interest will be levied as per Sections 234B and 234C of ITA, 1961.
Are senior citizens liable to pay advance tax?
If senior citizens do not have income sources from any business or profession, they are exempt from advance tax payments.
What will happen if I pay more advance tax than required?
If someone ends up paying more advance tax than required, then the person will receive the excess sun as a refund. The IT Department is liable to pay interest at the rate of 6% annually on this excess amount. However, it will only apply if the amount exceeds 10% of a person's tax liability
What is Form 26AS?
Income Tax Department in India issues Form 26AS, which contains important information related to tax credited and paid.