Advance tax – Basics
What is Advance tax?Advance tax is a form of Income tax, payable in advance, instead of making a lump sum payment at the end of the financial year. The advance tax is in respect of the total income of the assessee, which would be chargeable to tax in such financial year.
Who should pay Advance tax ?Every Assessee (Individual, Firm, Company etc.,) whose amount of tax payable in a financial year is rupees ten thousand or more (after considering TDS & Deductions).
Exception:Individuals: (i) aged 60 or more and (ii) does not have income chargeable under the head Profit and gains from business or profession.
How to compute Advance tax?Estimate the Income to be earned in a financial year. Estimates can be arrived by considering the Income earned in the previous year as base and considering the expected increase and decrease in the current financial year, also should consider adding a percentage for expected new customers and decreasing a percentage, if there is expected deletion in the existing customers.
Income tax should be calculated on the estimated revenue after deducting the amount of TDS that shall be deducted on such estimated revenue. If the Net tax payable computed on the estimated revenue is INR 10,000/- or more then the assessee should pay advance tax in instalments. The advance tax shall be paid in four instalments. The due dates and the amount of such advance tax to be paid in instalments are mentioned below:
| Due date of Instalment | Amount payable |
| On or before 15th June – 1st Instalment | Not less than 15% of advance tax |
| On or before 15th September – 2nd Instalment | Not less than 45% of advance tax (less the amount paid in previous instalment) |
| On or before 15th December – 3rd Instalment | Not less than 75% of advance tax (less the amount paid in previous two instalments) |
| On or before 15th March – 4th Instalment | 100% of advance tax (less the amount paid in previous three instalments) |
For tax payers who have opted for presumptive income:
| Due date of Instalment | Amount payable |
| by15th of March | 100% of Advance tax |
Example:Net taxable Payable – for tax payers who have not opted for presumptive income (Calculated after considering (i) income from all the heads, (ii) deductions in Chapter VIA (i.e. 80G,80C etc.,), (iii) TDS) – say INR 10,000/-
Amount payable on or before 15th June – INR 1,500
Amount Payable on or before 15th September – INR 4,500 – INR1,500 (amount paid in previous instalment) = INR 3,000/-
Amount Payable on or before 15th December – INR 7,500 – INR 4,500 (amount paid till previous instalment) = INR 3,000/-
Amount payable on or before 15th March – INR 10,000 – INR 7,500 (amount paid till previous instalment) = INR 2,500/-
Net taxable Payable – for tax payers who have opted for presumptive income
Amount payable on or before 15th March – INR 10,000/-
What if I don’t pay advance tax?
If an assessee is liable to pay advance taxi) has not paid advance tax orii) Paid less than 90% of tax computed at the end of financial year,
The assessee shall be liable to pay simple interest of one percent for every month or part of month on the advance not paid or short paid from first day of April following such financial year till the date of payment of such advance tax (234B).
AND
If an assessee pays any instalment less than the amount specified above, then a simple interest is charged in the shortfall amount at the rate of 3% on the first, second and third instalments and 1% on the fourth instalment (234C).
Exception:
If an assessee reaches 12 % of tax on returned income in the first instalment (income reported in income tax return) instead of 15%, no 3% interest is applicable. Similarly if the assessee reaches 36% of the tax on returned income in the second instalment instead of 45%, no 3% interest is applicable. Kindly note that no such exemption is there for third and fourth instalment.
If the shortfall in advance tax is due to under estimation or failure to estimate the amount of capital gains the assessee is not liable to pay interest.