What Are The Provisions Of Advance Tax In India?
Advance tax means income tax that a person has to pay in advance instead of paying it at the year end. Advance tax payment has to be made in instalments and the due dates for paying advance tax are given by the Income Tax Department. As per the rule 208 of Income Tax Act, every individual whose average tax liability for one year is Rs.10,000 or more has to pay their tax in advance, in the form of ‘advance tax.’ Advance tax must be paid by all the taxpayers including freelancers or any business professionals. In this article, you will get to know about the various provisions of advance tax in India.
Individual liable to pay advance tax
- If an individual has earned income in FY 2018-19, then they are liable to pay the tax in FY 2019-20.
- You are liable to pay the advance tax during the same year when the taxable amount is more than or equal to Rs.10,000.
The individual not liable to pay advance tax
In the case of senior citizens (of the age 60 years or above during the relevant financial year) who do not have any income from any profession or business are not liable to pay advance tax.
Required dates for paying Advance Tax
Advance tax has to be paid in different instalments, and they have different due dates, as mentioned below:
Notice | By 15th June | By 15th September | By 15th December | By 15th March |
All Taxpayers | Not less than 15% of Advance Tax | Not less than 45% of Advance Tax | Not less than 75% of Advance Tax | Not less than 100% of Advance Tax |
Only for those taxpayers who opted for Presumptive Taxation scheme mentioned in section 44AD or section 44ADA | NIL | NIL | NIL | Not less than 100% of Advance Tax |
Important Note: Till March 31st, the submitted tax is counted as advance tax.
Important Note: Taxpayers have to pay tax on the next working day in the event of a bank holiday. (Ref: Circular No. 676, dated 14-01-1994)
Rate of Interest for advance tax
The rate of Interest for the paying advance tax are as follows:-
Refund Type | Rate of Interest | Period |
When advance tax is paid during the current FY | Part of a month or per month ½ % | 1st day of April of the assessment year till the year refund is granted. |
Other cases | Part of a month or per month ½ % | The date for the payment of tax or penalty date when refund is granted. |
What are the conditions when a taxpayer has to pay Interest?
The various cases or conditions when a taxpayer has to pay Interest are as follows:-
- A taxpayer has to pay Interest for late filing or not filling return on or before due dates as mentioned in 234A of Income Tax Act.
- A taxpayer has to pay Interest for short payment or not paying advance tax as mentioned in 234B of Income Tax Act.
- A taxpayer has to pay Interest for deferment of advance tax as mentioned in the 234C of Income Tax Act.
- A taxpayer has to pay Interest for failure to pay and deduct the TDS as mentioned in the 201 (1A) of Income Tax Act.
Payment mode of advance tax
- In the Income Tax Rule 125 , companies have to pay advance tax online from an authorised bank.
- If your account is still unaudited, then pay the tax online using the internet online banking of the authorised bank.
- If you do not belong to either of the categories, then pay the advance tax either online or by depositing a demand draft at the nearest branch of your bank.
How to pay advance tax?
- A taxpayer can pay advance tax on his account.
- A taxpayer paying advance tax should calculate his total income and for the payment of advance tax on his account. In this case, a taxpayer doesn't need to submit any income statement to the tax authority department.
- After making the first, second, and third instalments of advance tax successfully, if required any change in tax liability, a taxpayer can change the advance tax quantum in the last instalments and submit the advance tax per the newly revised policy.
Tips to solve advance tax for small business owners?
As mentioned above every individual whose average tax accountability for one year is Rs.10,000 or more is responsible for paying advance. Let’s discuss some tips on saving advance tax for all the small business owners. These are:-
- Pay the municipal taxes through electronic payments.
- Save advance tax by deducting TDS.
- Claim for Additional Depreciation.
- Try to switch to efficient and smart accounting.
Conclusion
Paying advance tax on time reduces stress of the taxpayers. The main benefit of paying advance tax is that the taxpayer never feels the shortage of money for the payment of tax at the last month. Advance tax helps a businessman to easily manage their finances and they can properly calculate their total income during one financial year.
FAQs
Q. How is advance tax calculated?
Ans. Advance tax is calculated by the slab rate of a taxpayer of a financial year on his total estimated income of that year.
Q. What is the meaning of advance payment of tax?
Ans. Advance payment of tax means payment of the part of the yearly taxes in advance. If the annual income of a taxpayer is 10,000 or more, then he has to pay advance tax in a financial year.
Q. What are the consequences if you do not pay advance tax?
Ans. If you do not pay the advance tax on or before the due date, then you have to pay penal interest on advance tax.
Q. What is the percentage of advance tax on or before 15th June?
Ans. A taxpayer has to pay 15% of the advance tax on or before 15th June.
Q. Do small businesses get a tax break?
Ans. Under the 2018 tax law act, most small businesses will break 20% of their income on their advance tax.
Q. Mention three ways of minimising IRS taxes by small business owners.
Ans. The three ways of minimises of taxes IRS by small business owners are the following:-
- By starting a retirement plan.
- Deducting travel expenses.
- Start saving money for Healthcare Needs
Q. Should a senior citizen receiving pension have to pay advance tax?
Ans. No, a senior resident citizen having pension and not income from any profession or business is not liable for advance tax.