Understanding Advance Tax under Income Tax Act 1961

What is Advance Tax?

Advance Income Tax is a mechanism for the government to collect Income Tax revenue on a regular (quarterly) basis. The other widely known mechanism is TDS. Though TDS is very effective mechanism, it is used in combination with Advance Tax as certain incomes are not subject to TDS and further in many cases the rate of TDS is less than the rate at which the income is taxed in the hands of a taxpayer.

What are the Due Dates for payment of Advance Tax For FY 2017-18?

With the amendment in tax laws from F.Y.2017-18 all the tax payers are required to pay the Advance Tax as per the below schedule

How to pay Advance Tax?

Follow these steps to make online payment of Advance Income Tax:

Step 1: First, check if the bank with which you have an online banking facility is registered for online income tax payment. The list of such banks can be found on the next page of this document. If your bank is not listed, you cannot make online income tax payment through your bank account. Please note, the tax payment need not necessarily be paid by your bank account, it can be paid on your behalf by anyone else who has online banking facility without any change in the below mentioned procedure.

Step 2: If your bank is listed, please visit http://www.tin-nsdl.com and login

Step 3: Go to services and select e-payment

Step 4: Click on CHALLAN NO/ITNS 280

Step 5: Taxes applicable would be 0021 (Income Tax Other Than Companies)

Step 6: Assessment Year is 2018-19

Step 7: Type of Payment is 100 (Advance Tax)

Step 8: Enter your PAN and rest of your personal details

Step 9: Press PROCEED button. The name corresponding to PAN you entered earlier will appear on the screen. If it is not your name, it would mean that you have entered incorrect PAN.

Step 10: If your name has appeared correctly, click the submit button.

Step 11: You would be directed to your bank’s website. Log into your bank account. In the challan, enter the amount of tax next to the field income tax and make payment. You may enter the entire amount next to the field income tax. Complete the payment.

Step 12: Note the transaction ID.

Step 13: Save/print the received challan file.

Important Note: If you select your bank as ICICI Bank then by default you are directed to ICICI Bank’s Corporate Banking Login Screen. You have to click ‘Personal (Retail) Login’ button so that it takes you to ‘Personal Banking’ Login Screen wherein you can enter your user ID and password.

Who should pay Advance Tax?

You need to pay Advance Tax when your additional Income Tax liability (i.e. Income Tax liability in addition to the tax deducted at source by employers/others) for the Financial Year is estimated to be more than INR 10,000. Typically, you have to pay Advance Income Tax if you have additional income in the form of interest, rental, capital gains, Income from business or profession, income earned abroad, etc.

[ Calculate Advance Tax Liability ]

Advance Income Tax is not payable if:

i. You are a senior citizen and do not have income from business or self-employment, or

ii. The additional Income Tax liability (in addition to the TDS) for the year does not exceed INR 10,000.

What happens if I do not pay Advance Income Tax?

In case you do not pay Advance Income Tax, you would be required to pay interest under section 234B and under section 234C of the Income Tax Act, 1961. However, sometimes there can be exceptions. Let’s look at a scenario:

My additional Income Tax liability is more than INR 10,000 and I am not a senior citizen. Paying Advance Tax is a hassle for me. And I don’t even want to pay penal interest for non-payment of Advance Tax. Is there any way I can avoid paying Advance Income Tax?

You can avoid paying Advance Income Tax if you report the additional income to the payroll department of your employer organization in which case, the Income Tax on additional income would be deducted by the employer from your salary. However, while reporting the additional income with the employer, ensure that the amount reported is adjusted for the TDS on such income. For example, if you have an additional income of INR 1,00,000 in the form of interest on fixed deposit. The bank deducts 10% Income Tax on the amount of interest. However, if you are in 30% tax bracket, you have to pay only balance 20% Income Tax. If you decide to report this income with the employer organization, it would deduct Income Tax @ 30.9%. This would result in total TDS of 40.9% on the interest income which may result in, you have to claim a refund at the time of tax filing. To avoid this, you may report additional income of only INR 67,640 (instead of INR 1,00,000) so that the total TDS on the income of INR 1,00,000 equals the amount of Income Tax thereon. Many individuals prefer not to declare other sources of income with the employer organization for many reasons and therefore opt to pay the Advance Tax.

How much Advance Tax am I required to pay by December 15, 2017?

You are required to pay 75% of the Income Tax as Advance Tax by December 15, 2017. For example, you are in 30% tax bracket. Income Tax on your salary income is deducted at source by the employer. You have additional income in the form of interest on fixed deposits to the tune of INR 1,00,000. Bank would be deducting Income Tax thereon @ 10%. The total additional Income Tax, net of TDS, would be INR 20,900, (including education cess) approximately. 75% of this amount needs to be paid by December 15, 2017.