All About Advance Tax Under Income Tax Act

All about Advance Tax under Income Tax Act

Advance tax, as the name suggests is the tax which is to be paid in advance by the assessee during each financial year. It is also known as ‘Pay as your Earn’ Tax and is different from the usual income tax. For paying this tax, the assessee has to estimate his income beforehand for the entire financial year and pay the tax accordingly. This Advance tax collection is to ensure that the government is able to collect taxes uniformly throughout the year.

Who is bound to pay Advance Tax?

If the assessee falls under any of the below criteria, then he is bound to pay the advance tax:
Total Tax liability is Rs. 10,000 and above in a financial year (Section 208 of the Income Tax Act)
For instance, income is earned from capital gains on shares, Income earned through interest on Fixed Deposits, income from winnings from lottery, rent or income earned from house property above the value of Rs. 10,000/- which is earned by any assessee is subject to payment of Advance Tax.

Also Read: Income Tax Slab Rates under the Old and New Tax Regime

Note: Senior citizens of above 60 years of age, who are not having any income from business or profession are not required to pay advance tax.

Presumptive income for BusinessesThe taxpayers who have opted for presumptive taxation scheme under section 44AD of the Income Tax Act have to pay the whole amount of their advance tax in one instalment on or before 15 March. They also have an option to pay all of their tax dues by 31 March.

Presumptive income for Professionals– Independent professionals such as doctors, lawyers, architects etc. come under the presumptive scheme under Section 44ADA of the Income Tax Act. They have to pay the whole of their advance tax liability in one instalment on or before 15 March. They can also pay the entire amount by 31 March.

Illustration 1:

Shyam is running a bakery business. The turnover of the business for the financial year 2021-22 amounted to Rs. 1,84,00,000. He wants to declare income under section 44AD at 8% of the turnover. He does not have any other source of income. Will he be liable to pay advance tax?

Shyam satisfies the criteria of section 44AD of the Act in respect of provision store business and, hence, he can adopt the provisions of section 44AD and declare income at 8% of the turnover. Thus, if Shyam adopts the provisions of section 44AD, he is also liable to pay advance tax in respect of income generated from bakery business.

Illustration 2:

Krishna (aged 39 years) is running a pharma store. The turnover of the store for the financial year 2021-22 amounted to Rs. 40,00,000. His accounts revealed a net profit of Rs. 2,60,000. Will he be liable to pay advance tax?

à In this case, Krishna will be liable to pay advance tax in respect of income generated from pharma store business if his estimated tax liability for the financial year comes out Rs. 10,000 or more. The taxable income of Krishna is Rs. 2,60,000. Tax on Rs. 2,60,000 will be Rs. NIL, hence, Krishna is not liable to pay advance tax.

Also Read: How to pay advance tax online 

How to calculate Advance Tax?

Step 1: Calculate Income Tax on estimated total income. The income could be from these major heads:
Income from salary
– Income from interest on Fixed Deposits, savings account, etc
– Income from capital gains
– Any professional income
– Income from rent
– Income of minor, if any
– Any other income
Step 2: Add surcharge on estimated income
Step 3: Add Education and Secondary & Higher Education cess
Step 4: Deduct rebate under Section 87A, if applicable
Step 5: Deduct TDS
= Advance Tax Liability

Illustration 1:

For example your total income for FY 2021-22 is Rs.15,00,000 (including Rs. 50,000 standard deduction), then your estimated liability is Rs.2,73,000 calculated as follows:

Income Tax Slab Rate / Cess

Tax Rate

Tax Payable (in Rs.)

Rs. 1 – Rs. 2,50,000

NIL

0

Rs. 2,50,001 – Rs. 5,00,000

5%

12,500

Rs. 5,00,001 – Rs. 10,00,000

20%

1,00,000

Rs. 10,00,001 – Rs. 15,00,000

30%

1,50,000

Total

2,62,500

Senior & Higher Education Cess

4%

2,73,000

Net Tax Payable

2,73,000

The calculation of Advance Tax Liability is as follows:

Description

Advance Tax Liability (in Rs.)

Advance tax payable upto June 15, 2019 (Cumulative) (15% of Rs. 2,73,000)

40,950.00

Advance tax payable upto September 15, 2019 (Cumulative) (45% of Rs. 2,73,000)

1,22,850

Advance tax payable upto December 15, 2019 (Cumulative) (75% of Rs. 2,73,000)

2,04,750

Advance tax payable upto March 15, 2020 (Cumulative) (100% of Rs. 2,73,000)

2,73,000

Advance tax payable upto March 31, 2020 (Cumulative)

2,73,000


Bifurcation of Advance Tax Instalments is as follows:

Description

Advance Tax Liability (in Rs.)

First installment payable for the period April 1, 2019 to June 15, 2019

40,950

Second installment payable for the period June 16, 2019 to September 15, 2019

81,900

Third installment payable for the period September 16, 2019 to December 15, 2019

81,900

Fourth installment payable for the period December 16, 2019 to March 15, 2020

68,250

Last installment payable for the period March 16, 2020 to March 31, 2020

0

*Assuming that you have opted for the older tax regime and have invested no other amount to claim deductions under Section 80C to Section 80U and have not claimed any relief/TDS refund.

Click here to calculate your advance tax liability

Illustration 2

Arjun is a taxpayer who earned income under the head ‘Business and Profession’. 
Estimated Gross Receipts for the financial year= Rs 22,00,000
Estimated Expenses related to income earned=  Rs 10,00,000
Receipts on which TDS is expected to be deducted= Rs 4,00,000
Interest Income= Rs 50,000

Particulars

Amount (Rs)

Amount (Rs)

Gross Receipts for the financial year

22,00,000

Expenses related to income earned

10,00,000

Income From Profession 

(22,00,000 – 10,00,000)

12,00,000

Income From Other Sources (Interest on Fixed Deposit)

50,000

Total Income Chargeable to Tax (A)

12,50,000

Less: Deductions under Chapter VIA (Section 80C to Section 80U)

Investment in PPF Account

50,000

Investment in ELSS Mutual Funds

70,000

Investment in Tax-Saving Fixed Deposit

30,000

Deduction under Section 80D

30,000

1,80,000 (B)

Total Taxable Income (A-B)

10,70,000

Tax Payable

1,33,500

1,33,500

Less: TDS Deducted by other taxpayers

(4,00,000 * 10%)

40,000

Tax Payable in Advance

93,500

What are the due dates for payment of advance tax?

Due dates for both individual and corporate taxpayers

Due Date

Advance Tax Payable

On or before 15th June

15% of advance tax

On or before 15th September

45% of advance tax less advance tax already paid

On or before 15th December

75% of advance tax less advance tax already paid

On or before 15th March

100% of advance tax less advance tax already paid

Due dates for taxpayers who have opted for Presumptive Taxation Scheme under section 44AD & 44ADA – Business Income

Due Date

Advance Tax Payable

On or before 15th March

100% of advance tax

Consequences of not paying Advance Tax

If advance tax paid by you is less than 90% of the assessed tax, then you will be charged an interest of 1% every month under Section 234B of the Income Tax Act. The interest is computed as 1% interest on the defaulted amount for every month until the tax is paid off completely. The same interest penalty will be applicable if you don’t pay by the second or third deadline.

Under Section 234C of the Income Tax Act, if you do not pay your advance tax installment on time, then you will be charged an interest rate of 1% from the due date of individual installment till the date of actual payment.

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