written by Khatabook | July 19, 2021

Advance Tax- Understanding Advance Tax Payment and its Calculation

If you have earnings or income, then it is subject to taxes by the Income Tax Act of 1961, its rules and directions. The advance tax liability also applies to taxpayers and individuals who have income from sources other than salary income. For example, income from capital gains from a rise in share value, rent, lottery winnings, fixed deposits etc. 

What Is Advance Tax?

Advance tax is the tax liability paid by individuals/taxpayers with income sources other than salary payments like dividend and share incomes, rent, capital gains, FDs etc. Such advance tax payments are to be made in the same FY as the income was earned. That’s why advance tax is also known as the ‘Pay As You Earn' scheme. It becomes applicable when the tax liability in any FY or financial year is greater than Rs 10000. 

For example, you compute your advance tax calculation for AY 2019-20 liability as Rs 25000. Your income comprises salary, FDs and shares value appreciation. Then you should pay advance tax in the accounting year 2019- 2020 itself.

How To Pay Advance Tax

The tax can be paid through certain banks or online. The payment of advance tax can be made using the challans for tax payment at specific bank branches authorised by the IT department. Such advance payment of tax can be made at banks like the RBI or Reserve bank of India, ICICI Bank, HDFC Bank, Allahabad Bank, Syndicate Bank, State Bank of India etc., as per the income tax directives.

Advance Income Tax can also be paid online using the advance tax payment section for online tax payment on the Income Tax department’s website or the NSDL or National Securities Depository Limited site.

Advance Payment of Tax Notes: Union Budget 2021

The advance income tax proposal in the Budget 2021 aims to help the easier payment of the tax liability on Dividend Income as advance Tax.  The Finance Minister in the Union Budget 2021 announced the advance tax proposal on February 1st 2021. The proposal eases the payment and calculation of advance tax on income from dividends, thus helping the taxpayers avoid paying penal interest on the advance tax on dividend income.  

Computing the advance tax is difficult, and confusions arise in calculating the correct income from dividends.  As per the new proposal, the compliance of advance tax payments on dividends shall be on equal footing or on par with the advance tax on capital gains. Thus, even dividend incomes will be treated as the tax on capital gains paid after realising such gains/ income in their hands. 

The advance tax late payments incur penal interest. Such penalty amounts can be avoided by simplifying the advance tax calculation. This amendment came into force from April 1st 2021 and applies to the assessment year 2021-22 and its following years.

Who should pay the Advance Tax?

The conditions to be met to pay advance tax are listed below.

  • You must be a self-employed or salaried taxpayer/ individual.
  • The advance tax liability should be Rs 10000/- or more.
  • You should have income apart from any salary income from either 
  • Capital gains income
  • Income from dividends, 
  • Income from shares
  • Income from lottery winnings
  • Income from interest on fixed deposits
  • Rental income from a property.

Also Read: How To File ITR (Income Tax Returns) Online – Income Tax E-filing Guide For FY 2020-21

Due Date for FY 2021-22 Instalments of Advance Tax Payments

In the FY or Financial year 2021- 2022, the last date is 15th March 2022 for the final instalment of advance tax payment. On or before this date, taxpayers must pay the entire or 100% of the advance tax liability.

Schedule Of Payment And Due Dates For Advance Tax Payments

For self-employed business people, the list of advance tax due dates is given below.

Date of Installment

Payable Amount

On or before September 15th  

At least 30% of the liability of advance tax

On or before December 15th  

At least 60% of the liability of advance tax

On or before March 15th  

100% of the advance tax liability

Schedule of Advance Tax Payment For Individual Assessees and Companies (Other Than U/S 44AD):

Date of Installment

Payable Amount

On or before 15th June 

At least 15% of the liability under Advance Tax

On or before 15th September 

At least 45% of the liability under Advance Tax 

On or before 15th December 

At least 75% of the liability under Advance Tax 

On or before 15th March 

100% of the Advance Tax liability

How to pay Advance Tax online?

The liability of advance tax can be paid online on the website provided by the Income Tax Department. Here’s how you should proceed to make a successful advance tax online payment.

  1. First, go to the official site for the Government’s NSDL website (www.tin-nsdl.com).
  2. Under the menu, choose "Services"  and click on the “e-payment” and the “Pay Taxes Online” tabs.
  3. Next, choose the challan to pay advance tax of your income tax. (Challan for Advance tax).

  1. On the online form, fill in your details. Ensure you select the right assessment year from the drop-down box and fill in your full name, phone number, postal address, email address, your bank’s IFSC/ MICR code, advance tax amount, bank name, other details requisitioned and the captcha code as required. 
  2. Save the form details using the tab below every once in a while.

  1. Once you have submitted this form by clicking on the “Submit” button, you get redirected to your bank’s Net Banking page to make a payment. 
  2. Check if your income details are correct before proceeding to the next page.
  3. You then get the challan number and the payment details to pay the advance tax. 

  1. Once your payment is made, you should report the payment by adding the amount paid as an additional entry on the page for taxes paid. 

Using Challan 280 for Advance Tax payment

Challan 280 is used for advance tax payments. It allows the taxpayer to pay offline or online the advance income tax liability on the Income Tax Department’s website. 

  • To pay in the online mode, just select the online payment option of challan 280. Fill it correctly, and then make your online payment of advance taxes from home or your office. 
  • In the offline mode, download the challan 280 using the Income-tax portal’s welcome page and downloads tab. This form needs to be printed and filled in. Then the advance tax payment can be made using this challan at any of the designated bank’s branches. (Details of approved banks are also available on the IT Department’s website).

How to calculate Advance tax

Calculation of advance tax can be simple if you follow these pointers and steps.

Step 1: 

  • Estimate your total income earned in the FY for which you are calculating your advance tax. Use these income heads to calculate your total earned ‘other income’ in that FY.
  • Income in interest earned form from the savings account, fixed deposits etc.
  • Professional income ( self-employed professionals)
  • Rental income
  • Capital gains
  • Income of minors under the taxpayer’s guardianship
  • Any other source of income

Step 2: 

To the total of the income figure above, add your salary to find the gross taxable income. Note that your salary amounts are not due for advance tax. However, the total gross sum with your salary included could change the slab of taxation and your tax liability.

Step 3:

Calculate your tax liability payable using the appropriate income tax slab applicable to you.

Step 4:

Use the TDS slabs and subtract the already deducted and likely to be deducted TDS amounts. If this amount is equal to or greater than Rs 10000/-, you need to pay your advance tax liability on or before the due dates for advance tax.

Also Read: Income Tax Slabs 2021 & Tax Rates For FY 2020-21/ FY 2019-20/ FY 2018-19

Example of Advance Tax Calculation

Let us assume that the advance tax liability in the above process is Rs.2 lakh.  You will need to pay advance tax as per the schedule below.

Date of Installment

Payable Amount

On or before 15th June

Rs 30000/-

On or before 15th September

Rs 90000/-  

On or before 15th December

Rs 30000/- 

On or before 15th March

Rs 50000/-

Always ensure your advance tax schedule is strictly maintained to avoid penalties. Note that the advance tax liability varies depending on the date of the advance tax payment made and the advance tax liability amount.

Penalty and Interest on Advance Tax

The IT Act 1961 U/S 234C levies 1% interest on the advance tax slab instalment if it is not paid on time. Also, when the advance tax paid is less than 90% of the liable assessed tax, interest will be calculated on the defaulted amounts at the rate of 1% per month. This monthly interest will continue to be applicable till the defaulted amount is completely paid off. Interest applies irrespective of which deadline is missed, be it the first, second or third deadlines. 

Advance Tax Payment Exemptions:

The following persons are exempt from advance tax payment.

  • Those above 60 years of age or senior citizens are exempt from advance tax payments.
  • Taxpayers with TDS deductions more than their income tax liability.
  • Salaried taxpayers under the TDS scheme are exempt from advance tax payments. However, they should not have any other income sources like rent, FDs and SB interest, lottery winnings, capital gains from property, other non-salary incomes taxable under the advance tax.

Advance Tax Benefits

Some of the benefits of advance tax payments are listed below.

  • Advance tax payments reduce last-minute taxpayer stress due to lack of funds.
  • The tax collection process is speeded up and helps with developmental projects.
  • The government earns interest on the advance tax payment amounts collected, thereby providing increased government funds.
  • It saves taxpayers from paying interest on advance tax-defaulted liabilities.
  • It aids taxpayers and businesses in financial management and planning of their earnings.

Advance Tax Payment Refund

Suppose you pay more than your liability in any FY. In that case, the Income Tax Department refunds the excess amount at the end of the FY or financial year. The taxpayers need to file online or download Form 30, fill it and submit the same to claim the refund. Such claims are to be made within a year from the last assessment year. Where the advance tax amount paid is more than 10% of the advance tax liability, an interest of 6% per annum is paid by the Income Tax Department.

Also Read: TDS Refund: How To Claim TDS Refund

Parting Words:

Want to keep track of your income and compute advance tax quickly? Use the KhataBook app that helps track your salary, its components, tax and advance tax liability etc., when filing ITRs and improves your tax planning. 

FAQs 

1. I forgot to pay the 4th advance tax instalment payable on 15th March. What must I do?

Make the payment by 31 March if you have missed the 15th March deadline for paying the 4th instalment. This way, you can avoid the interest charged at 1% per month on the defaulted advance tax amount.

2. Should NRIs also pay advance taxes?

Yes, if your advance tax liability is greater than or equal to Rs 10000/-. Do follow the payment schedule and due dates to avoid the monthly penal interest of 1%.

3. I have paid more than my advance tax liability. What happens to the excess amounts paid?

Suppose you pay more than your liability in any FY. In that case, the Income Tax Department refunds the excess amount at the end of the FY or financial year. The taxpayers need to file online or download Form 30, fill it and submit the same to claim the refund. Such claims are to be made within a year from the last assessment year.

4. Will tax payable till 31st of March also be treated as advance tax?

Yes, the taxes paid till the 31st of March are treated as an Advance Tax payment.

5. How can advance tax be paid?

You can pay your liability under the advance tax in the offline or online modes using the Challan-280 and internet banking or remitting the payment at approved banks of the IT Department with the challan 280 downloaded from the IT Department’s website.

 

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