We have all heard about income tax, GST (Goods and Services Tax) and Value Added Tax (which is what GST was known as previously), but what in the world, is advance tax?
The Indian income tax system makes it mandatory that persons having a tax liability of above Rs. 10,000 need to pay advance tax. Therefore, advance tax is just income tax paid in advance. In other words, if in the first quarter of Financial Year 2019-20 (Financial Year means the year from 1 April of the year till 31 March of the next year), your tax liability is above Rs. 10,000 then on the first instalment date i.e. 15 June 2019, 15% of the tax liability must be deposited with the government.
As you may have observed, advance tax is paid as the year progresses and as you earn income, however, the income tax returns are filed after the end of the Financial Year on 31 July (if you’re an individual or HUF or a non-audited person) or on 30 September (for all other persons apart from entities to which transfer pricing is applicable).
Only senior citizens above the age of 60 years and who do not run a business are exempt from paying advance tax.
When to pay?
The dates for payment of advance tax are as under:
1st instalment – On or before 15 June
2nd instalment – On or before 15 September
3rd instalment – On or before 15 December
4th instalment – On or before 15 March
How much to pay?
Your advance tax payable for the year shall vary depending on the income that you’re planning to receive or receiving throughout the year. However, a Chartered Accountant can help you determine the same. Once the total payable amount is determined, the instalment amounts can be calculated. The percentage of total amount payable, as on a particular date is mentioned below:
15 June – 15%
15 September – 45%
15 December – 75%
15 March – 100%
How to pay?
Well, just like the usual income tax challan, through ITNS 280. A chartered accountant can help you determine the advance tax liability or the amount to be paid.
Once the challan payment is completed, not much needs to be done except for carefully preserving the advance tax payment challan. This challan shall be required at the time of income tax return filing.
What happens if you don’t pay?
Well, not penalties, but interest gets charged in case you delay or default on your liability to pay advance tax. Such interest is charged under Section 234B and Section 234C of the Income tax Act.
