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Stay Ahead with Advance Tax in India: Eligibility and Features

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Advanced tax is a mechanism for collecting income tax in India. In such a structure, taxpayers must pay their income tax liability in advance, in instalments, instead of paying the entire amount at the end of the financial year.

Many people grimace about paying taxes because they have to shell out hard-earned money and do not know the function of paying taxes and how to calculate taxes. Advance tax is a portion of the tax payable before the conclusion of the fiscal year. It is also known as the pay-as-you-earn program since income tax is paid in the year money is earned. Advance income tax is a tax you pay on earnings other than your salary.

Did You Know? Advance tax is the tax you pay in advance for obtaining money from sources other than your salary (rental, investment income, stocks, FD, raffles). 

What is an Advance Tax?

As the term implies, advance tax is tax paid in advance. You must pay the proportional part of your total tax obligation periodically during the fiscal year. According to Section 234C of the Income Tax Act, any deficit or refusal to pay advance tax results in a penalty of 1% per month until the entire tax is paid.

Who Are Liable for Advance Tax Payments?

Any person, Hindu Undivided Family, Association of Persons, Body of Individuals, Company, or Local Authority obliged to pay income tax and has an anticipated tax obligation of Rs. 10,000 or more for the year must pay tax in advance in the form of advance tax.

To pay advance tax, one must be eligible for the following points:

  • Tax liability should exceed ₹10,000.
  • You should be self-employed or a paid employee.
  • You have made money by winning lotteries.
  • Receipt of rent from a residential property.
  • Have fixed deposit interest earnings.
  • Earnings from shares or capital gains.
  • A resident elderly citizen with no business or professional income is not required to pay advance tax.

Individual taxpayers with income other than wages must pay advance tax in installments. Moreover, taxpayers who have chosen presumptive taxation under sections 44AD or 44ADA must pay the total advance tax by March 15, 2023.

Also Read: Know All About Tax on Inheritance in India

Exemptions for Advance Tax Payment 

The advance tax does not apply to all Indians. The following people are exempt from paying advance taxes.

  • Any elderly individual above the age of 60.
  • Indian citizens who do not earn TDS slabs. But, if they have other kinds of income, such as interest, investment income, leases, or any other non-salary income, they may be required to pay advance taxes.
  • You will not have to pay advance tax if the TDS exceeds the yearly tax due.

The due date for advance tax payment is 15 March 2023.

Steps to Pay Advance Tax Online

You can now pay your advance tax online in a few easy steps. If you are a business owner attempting to work out how to pay it online, follow the steps given below. After viewing the e-payment option on the Income Tax Department’s official online site, follow these steps:

Step 1: Go to the official website to pay advance tax online.

Step 2: Choose Challan 280 from the options on-site.

Step 3: Choose the Applicable (0021) Income Tax (No Companies) and proceed as follows:

  • Choose Self-Assessment Tax as a payment type.
  • Choose your payment method and bank.
  • Please enter your PAN number.
  • Choose the Assessment Year (Re-confirm your choice).
  • Fill out the contact information.
  • Enter the security code (captcha) and press the Continue button.

Step 4: After entering all the information, double-check everything and click the Submit to Bank button.

Step 5: Make your internet banking payment using your credentials.

Step 6: Enter the amount and click Submit.

Step 7: After a few seconds, you will receive the challan receipt and bank data such as bank code, number and date of challan, and amount paid.

Once received, you will be notified that you have successfully paid your advance income tax online. You can, however, save the receipt for future reference.

Advance Tax Calculation

Now that you understand an advance income tax payment and how to pay online, let’s calculate our advance tax liability.  

  1. Calculate your business or occupation earnings. Include all earnings from ongoing projects or tasks with fixed fees. Include any other money expected due to continued engagement with clients/customers.
  2. Interest is collected on fixed deposits, savings bank accounts, etc.
  3. Profits from capital gains.
  4. Your yearly professional earnings.
  5. Rent income.
  6. Income from accounts of minors.
  7. Additional sources of income.
  8. Subtract the expenditures. You can deduct costs directly relevant to your company or profession. Rent, power, administrative and professional fees, publications, fuel expenditures, staff wages, devaluation, and other expenses are all allowable deductions from revenue.
  9. Add the remaining income sources, such as residential properties, investment income, other forms of income, etc. This will compute your total taxable income. Although your pay is exempt from advance tax, the total amount will affect your tax liability.
  10. Next, compute your tax liability based on your overall revenue and deduct the TDS already taken from your earnings.
  11. If the resultant tax liability exceeds Rupees Ten Thousand, you must pay advance tax in instalments according to the advance tax due dates below.

Also Read: Income tax Calculator – Calculate Your Taxes For FY 2023-24 Use Tax Calculator Online

Amount Payable by Individuals

Amount Payable by Companies

Due Date of Installment

Not Less than 15% of Advance Tax Liability

On or Before 15 June

Not Less than 30% of Advance Tax Liability

Not Less than 45% of Advance Tax Liability

On or Before 15 September

Not Less than 60% of Advance Tax Liability

Not Less than 75% of Advance Tax Liability

On or Before 15 December

100 % of Advance tax liability

100 % of Advance tax liability

On or Before 15 March

Advance Tax Calculator

The Advance tax calculator is an online tool from the Income Tax Department of India to help taxpayers calculate their tax liability. Individuals and businesses may use the Advance Tax Calculator to calculate their taxes quickly and easily.

The following are the primary advantages of using an advance income tax payment calculator:

  • Simple and intuitive tool
  • Accurately calculates your Advance Tax liability
  • Being an internet tool, it is easily accessible to everybody
  • Calculates your taxable income in minutes

Significant Changes in Advance Tax Regime as per the 2023 Budget

Surcharge on advance tax on income under the new tax framework established by Section 115BAC

In the case of any individual, HUF, APO, BOI, whether registered or not, or any fictitious judicial entity referred to in section 2(31), (vii)

Total earnings (inc income by dividend or income under provisions of Section 111A, 112, 112A)

Service fee

Rs.50 Lakhs to Rs. 1 Crore

10% of Advance tax levied

Rs. 1 Crore to Rs. 2 Crore

15% of Advance tax levied

Rs. 2 Crore

15% of Advance tax levied

Beyon Rs. 2 Crore

25% of Advance Tax levied

Benefits of Paying Advance Tax

Paying taxes in advance has the following advantages:

  • Advance tax payments made on time reduce the likelihood of last-minute trouble.
  • Taxes paid in advance relieve taxpayers of financial stress for the full fiscal year.
  • Those who pay their taxes in advance are less likely to default.
  • It assists organisations in effectively managing their finances and estimates the money received throughout the fiscal year.
  • The advance income tax allows the Indian government to raise revenue. It boosts government finances by allowing the government to gain interest in the funds collected. These proceeds are then used to help the poor in India.
  • It accelerates tax collection.

Advance Tax Late Payment and Interest

If you pay less than 90 percent of the assessed tax, you will be charged 1 percent interest each month. This is under Section 234B of the Income Tax Act. Until the tax is paid, the penalty is calculated as a 1 percent interest rate on the delinquent amount. You will face the same interest penalty if you do not pay by the second or subsequent date.

If you do not pay your advance tax payment on schedule, you will be charged 1 percent interest under Section “234C” of the Income Tax Act.

Refund for Advance Tax Payment

If the Income Tax Division concludes that you paid higher tax than you should have, it will reimburse the difference at the end of the year. Taxpayers can request a refund by completing and sending in Form 30. 

They must submit their claim within one year of the assessment year’s end. Check the following requirements to see if you are qualified for a Refund for Advance Tax Payment. You may request a refund if:

  • You paid self-assessed advance tax, which was greater than the normal assessed tax.
  • The TDS on your income is greater than the actual tax payable
  • Due to a mistake in the assessment, the tax imposed based on normal assessment has been lowered.
  • Income has previously been taxed in a foreign country with which the Indian government has an agreement.

Also Read: Residential Status for Income Tax – Individuals & Residents

Conclusion

Advance tax payment is income tax paid in advance rather than in one flat sum at the end of the fiscal year. It is the tax you pay on your earnings. The payment must be made in instalments according to the income tax department’s due dates. Choose the instalment that applies to you, compute your advance income tax, and pay advance tax on time.
Follow Legal Tree for the latest updates, news blogs, and articles related to micro, small, and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.

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