Advance tax refers to paying a part of your taxes before the end of the financial year. Also called ‘pay-as-you-earn’ scheme, advance tax is the income tax payable if your tax liability is more than Rs. 10,000 in a financial year. It should be paid in the year in which the income is earned / received.
Advance tax receipts help the government to get a constant flow of income throughout the year so that expenses can be incurred rather than receiving all tax payments at the end of the year.
For instance: if your advance tax liability for the financial year 2017-18 has exceeded Rs. 10,000, you are expected to pay it in F.Y 17-18 itself.
APPLICABILITY OF ADVANCE TAX
If you are a salaried employee, you need not pay advance tax as your employer deducts tax at source (TDS). Advance tax is applicable when an individual has sources of income other than his salary.
For instance, if an assessee earns income via capital gains on shares, interest on fixed deposits, winnings from lottery or races, capital gains on house property besides his regular business/salaried income then after adjusting for expenses or losses he needs to pay advance tax.
Please note that advance tax is payable even by salaried employees on their other income.
While employers deduct TDS on salaries, advance tax is paid on income that is not subject to TDS. Professionals (self-employed) and businessmen will have to pay taxes in advance as, given their business income, the liability can be huge. The same implies for companies.
APPLICABILITY OF ADVANCE TAX ON THE PERSON ADOPTING PRESUMPTIVE TAXATION SCHEME
What is the meaning of presumptive taxation scheme?
As per Sections 44AA of the Income-tax Act, 1961, a person engaged in business is required to maintain regular books of account under certain circumstances. To give relief to small taxpayers from this tedious work, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD and 44AE.
What is the exemption applicable to the taxpayer who opts for presumptive scheme?
Eligible taxpayers who opt for presumptive scheme where business income is assumed at 8% of turnover, where turnover does not exceeds Rs. 2 Crores are exempt from advance tax for the FY 2017-18. But the taxpayer has to deposit the tax liability on or before 31st March of every financial year.
Due Dates for payment of Advance Tax for the F.Y. 2017-18
For Individual, HUF, Firms, Corporate taxpayers and for the taxpayers who opt for presumptive taxation having business income from plying, hiring or leasing of goods carriages under Section 44AE.
|Due Date||Advance Tax Payable|
|On or before 15th June||15% of advance tax|
|On or before 15th September||45% of advance tax|
|On or before 15th December||75% of advance tax|
|On or before 15th March||100% of advance tax|
For taxpayers who have opt for Presumptive Taxation Scheme – Business Income under Section 44AD.
|Due Date||Advance Tax Payable|
|by 31st March||100% of advance tax|
FREQUENTLY ASKED QUESTIONS?
What if I miss the deadline?
If you fail to pay or the amount you’ve paid is less than the mandated 12% of the total liability by the first deadline (15 June), you will need to pay an interest. This is computed @ 1% simple interest per month on the defaulted amount for three months. Similarly If you fail to pay or the amount you’ve paid is less than the mandated 30% of the total liability by the second deadline (15 September) interest @ 1% simple interest per month on the defaulted amount for three months.
The same interest penalty would apply if you fail to pay the third deadline (15 December). Failing to pay the fourth and last deadline (15 March) would mean paying 1% simple interest on the defaulted amount for every month until the tax is fully paid.
What if advance tax paid is more than required?
If the amount paid as advance tax is higher than the total tax liability, the assessee will receive the excess amount as a refund. Interest @ 6% per annum will be paid by the Income Tax department to the assessee on the excess amount if the amount is more than 10% of tax liability.