Last Updated on Feb 23, 2022 by Sankeeth Sunny

Ever wondered what terms like income tax and advance tax payment mean? If so, you are surely not alone. Complex terms and rules are bound to confuse many. For a better understanding, let us start from the basics. 

Governments levy a compulsory financial charge on all eligible citizens and organisations every year, and it is a major source of revenue for them. This charge, called a tax, is used to finance government activities that include introducing welfare programs, building national infrastructure, and improving the state of the economy. 

If you pay the tax during the year, rather than at the end, it is termed as ‘Advance Tax.’ Let us understand this in detail.

This article covers:

What is advance tax?

Advance tax is the income tax paid in advance in various instalments rather than a big amount paid at the end of the year. Also known as ‘pay-as-you-earn’ tax, you pay advance tax in instalments according to the due dates determined by the Income Tax Department. 

Advance tax figures indicate the final tax collection by the Government that informs us about the direct tax collection in the said financial year. These figures help banks and other financial establishments to predict liquidity requirements. Economists also go through these figures to understand the state of the economy. Stock analysts use them to forecast the quarterly results of companies.

By paying in advance, not only do you help your Government, but also lighten your tax burden with every instalment.

Let us see who all are required to pay the Advance Tax.

Who is liable for advance tax payment?

You are liable to pay the advance tax if you meet the given criteria: 

  • Your tax liability exceeds Rs. 10,000 in a financial year.
  • You have a salaried job or are self-employed.

The government levies advance tax on some specific incomes. They are as follows:

  • The income you make via interests on fixed deposits.
  • Your winnings from a lottery.
  • Capital gains you received from investing in shares.
  • Rent or income you earn from real estate.

How to calculate advance tax payment?

You can effortlessly figure out how much advance tax you have to pay by following the steps given below:

  • First, calculate how much you have earned in the financial year. Study in detail the above section to know which income sources you need to take into account. 
  • Add your salary to the above estimate to reach your gross taxable income. Yes, your salary is exempt from advance taxation. But the total figure may alter your tax slab, bringing change to your tax liability. 
  • Look up the latest income tax slab applicable for you and calculate your total payable tax.
  • Deduct the amount according to the TDS slab. But first, check whether this has already been done. 
  • If the figure you reach after the above steps is more than Rs. 10,000, you are liable to pay advance tax.

Given below is a detailed example of advance tax payment. This is for you to understand the calculations better. 

Let us assume that your tax liability is Rs. 1,00,000 for this financial year. You shall be liable to pay the advance tax as follows:

Payment due dateAmount to be paid as advance tax
On or before 15 JuneRs. 15,000
On or before 15 SeptemberRs. 45,000
On or before 15 DecemberRs. 15,000
On or before 15 MarchRs. 25,000

How to make the payments for Advance Tax? 

You can make your advance tax payment using Challan No. ITNS 280, which is available at bank branches authorised by the Income Tax Department. Deposit the Challan with the Reserve Bank of India (RBI) or any of the 926 authorised bank branches. 

You can also pay your advance tax online through the website of the National Securities Depository Limited.

Advance tax payment due date for FY 2020-2021

If you are a self-employed individual or a businessman, then you need to keep the following dates in mind for your advance tax payment –

Due date of instalmentAmount payable
On or before 15 SeptemberNo less than 30% of the advance tax liability
On or before 15 DecemberNo less than 60% of the advance tax liability
On or before 15 March100% of the advance tax liability

If you are a business organisation or economic firm, then you need to keep the following dates in mind to make your advance tax payment –

Due date of instalmentAmount payable
On or before 15 JuneNo less than 15% of the advance tax liability
On or before 15 SeptemberNo less than 45% of the advance tax liability
On or before 15 DecemberNo less than 75% of the advance tax liability
On or before 15 March100% of the advance tax liability

Exemptions in advance tax payment

If you fall under any of the given categories, you are exempted from making advance tax payments –

  • You are a senior citizen. That is an individual who is 60+ yrs in age. 
  • The TDS deductible is greater than your tax liability. For this, check the TDS slab and deduct the required amount from your tax liability. 

Conclusion

While announcing the Union Budget 2021, Finance Minister Nirmala Sitharaman informed that the Government has decided to simplify the process of advance tax payment. Late payment of advance taxes invites penalties that taxpayers can easily avoid with the process becoming less complex. With the amendment setting in from April 2021, taxpayers will be able to calculate their tax liabilities and make the payments without help from third parties. 

Ayushi Mishra

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