What is Advance Tax and Who Needs to Pay It?

Introduction to Advance Tax Payment

If you want to make the most of your tax regime, it is essential to become familiar with the details of Advance Tax. Advance Tax Payment is set up to pay a share of your taxes in instalments on due dates decided by the Income Tax department in the same year you receive the income.

Additional Read: All about Income Tax in India: Basics, tax slabs and e-filing process

What Is Advance Tax and How Does It Work?

Paying a part of your yearly income tax in advance rather than in one payment at the end of a financial year is an advance tax payment. It is payable when your tax liability exceeds Rs 10,000 in a given fiscal year. Advance tax, also called ‘pay as you earn scheme’, should be paid in the same year the income is generated. The concept of advance tax payment will become relevant to you if you have sources of income other than your salary.

Who Is Eligible to Pay Advance Tax?

The advance tax applies to all categories of taxpayers whose total tax liability is more than Rs 10,000. Suppose you have other sources of income, such as capital gains. In that case, interest on investments, rental payment earned from house property, winnings cleared through a lottery, interest made on fixed deposits, among others, your tax liability may cross Rs 10,000 and above. Self-employed professionals and business owners will have to pay taxes in advance as liability can be huge through business income. However, if your source of income is only through salaries, you need not pay advance tax as your employer deducts tax at the start.

Additional Read: Income Tax vs Capital Gains Tax: What’s the difference?

When Should You Pay Advance Tax?

Payment of Advance Tax is as follows:

The first instalment – 15% of advance tax liability should be paid by 15^th June every year

Second instalment – 45% of advance tax liability should be paid by 15^th September every year

Third instalment – 75% of advance tax liability should be paid by 15^th December every year

Fourth instalment – 100% of tax liability should be paid by 15^th March every year

Payment of Advance Tax for self-employed and business owners who are covered under section 44AD is as follows:

On or before 15^th September – 30% of advance tax liability

On or before 15^th December – 60% of advance tax liability

On or before 15^th March – 100% of tax liability

How to Pay Advance Tax Online

Advance tax can be paid online as well as offline. You can make a payment towards your advance tax through the Income Tax portal online. Here’s how you can go about it:

Go to the official income tax website (https://www.incometax.gov.in/iec/foportal/)

Click on the e-pay tax

Select Challan No./ITNS 280

Fill in the correct and required details on the form. The form will consist of more information such as PAN No, assessment year, address, email id, mobile number, and payment mode.

After you finish filling the form, you will be redirected to the net banking page. Make sure to verify the amount you are going to approve.

After which, you will get the details of your payment, including a challan identification number validating your advance tax payment.

Suppose you are one of those people who are not comfortable with the online payment method. In that case, you can use the offline payment facility where tax challans are made available at bank branches that the Income Tax department authorizes. You can simply visit your bank, fill out the challan and make the payment.

If there is a change in your income after making the advance tax payment, you can update the income of advance tax while making the next instalment. And at the end of the year, if you find out that you’ve paid the income tax department more advance tax than you should have, you can claim a refund by submitting Form 30.

Conclusion

Make sure to pay your taxes on time to avoid penalties. Here’s another way to look at it. If you consider your advance as an EMI to the tax department, you won’t have to worry about it at the last minute, and it will save you from defaulting on your due payments.

Additional Read: How to check Income Tax refund status online