What is Advance Tax ?

In this article, we will discuss the “Advance Tax”, Payment of advance Tax, Let’s Start:

  • Advance tax is an “Income Tax” that should be paid in advance, as the name suggests “Advance Tax”. It is also termed as “Pay as you earn“.
  • Provisions relating to Advance Tax Payment are governed by section 207 to 219 of the Income Tax Act, 1961.

Who is Liable to Pay Advance Tax ?

As per section 208, every person whose estimated tax liability for the year is Rs. 10,000 or more, shall pay his tax in advance, in the form of “advance tax”.

Who is Not Liable to Pay Advance Tax ?

  • Generally,every person whose estimated tax liability for the year is Rs. 10,000 or more is liable to pay advance tax.
  • But for providing relief to Resident Senior Citizens who have passive source of income like rent, interest etc., the requirement for payment of advance tax causes genuine compliance of hardship. 
  • Conditions:
    • A Resident Senior Citizen (i.e., an individual of the age of 60 years or above during the relevant financial year);

And

    • Not having any income from business or profession

Due Dates for Payment of Advance Tax ?

Advance tax is to be paid in different instalments. The due dates for payment of different instalments of advance tax are as follows:

Status

On or Before

15th June

15th Sept.

15th Dec.

15th March
All assessees (other than the eligible assessee as referred to in Section 44AD or section 44ADA)

Minimum 15% of advance tax

 Minimum 45% of advance tax Minimum 75% of advance tax

Minimum 100% of advance tax
Taxpayers who opted for presumptive taxation scheme of section 44AD or section 44ADA

Nil

 Nil Nil Minimum 100% of Advance tax

Note 1: Any tax paid till 31st March will be treated as advance tax.

Note 2: If the last day for Payment of any installment of advance tax is a day on which the banks are closed, then the tax payer should pay advance tax on the immediately following working day [Circular No. 676, dated 14-1-1994].

How to Compute Advance Tax ?

Example 1

Mr. Dinesh is a doctor. Although Mr. Dinesh is in a profession specified under section 44AA(1) but he doesn’t opt for presumptive taxation of the scheme of section 44ADA. Compute the amount of advance tax to be paid by Mr. Dinesh ( age 50 years) from the following details provided by him (for the year 2020-21):

  • Gross business receipts  Rs. 30,00,000.
  • Allowable expenses Rs. 18,00,000.
  • Interest from fixed deposit Rs. 8,000.
  • Deduction u/s 80c PPF Rs. 50,000 and LIC  Rs. 30,000.
  • Deduction u/s 80D Rs. 10,000.

Computation of ( Estimated ) taxable income and tax liability of Mr. Dinesh for the year 2020-21:

Estimated Income for Advance Tax

Amount (₹)

 Amount(₹)
     
Income from Profession:    
Gross Receipts

30,00,000

  
Less: Allowable Expenses

18,00,000

 12,00,000
     
Income from Others Sources:    
Interest from Fixed Deposit  

8,000
GROSS TOTAL INCOME  

12,08,000
Less: Deduction under Chapter VI-A    
Under Section 80C    
Contribution to PPF

50,000

  
LIC Premium

30,000

  
 

80,000

  
Deduction under 80D

10,000

90,000
TOTAL INCOME  

11,18,000
TAX PAYABLE  

1,47,900
Add: Health & Education Cess @ 4%  

5,916
Less: Tax Deducted at Source (TDS)  

53,816
TAX PAYABLE IN ADVANCE  

1,00,000

Mr. Dinesh is being a doctor is in profession specified  under section 44AA(1) but he doesn’t opt for the presumptive taxation scheme of section 44ADA. Hence, he has to pay advance tax in installments as under :

Advance Tax Payments 

Due Date

Advance Tax Payable

Amount(₹)

15th June

 15 % of Advance Tax 15,000 i.e  (1,00,000 * 15%)

15th September

 45% of Advance Tax less advance tax already paid 30,000 i.e [ (1,00,000*45%) i.e 45,000 – 15,000 already paid ]
15th December 75% of Advance Tax less advance tax already paid 30,000 i.e [( 1,00,000*75%) i.e 75,000 – (15,000 + 30,000) already paid ]

15th March

100% of Advance Tax less advance tax already paid

25,000 i.e [ (1,00,000*100%) – (15,000+30,000

+30,000) already paid]

Example 2

Compute the amount of advance tax to be paid by Mr. Ram Lal ( age 50 years) from the following details provided by him (for the year 2020-21):

  • Taxable business receipts  Rs. 10,84,000.
  • Interest on debenture Rs. 9,000 (after deduction of tax at source of Rs. 1,000).
  • Investment in NSC during the year Rs. 80,000.
  • He has paid tuition fees of his son of Rs. 1333.

Computation of (Estimated) taxable income and tax liability of Mr. Ram Lal for the year 2020-21:

Estimated Income for Advance Tax Amount  Amount
Profits and gains of business or profession 10,84,000  
Income from Other Sources

( Rs. 9,000 net interest + TDS of Rs. 1,000 )

     10,000  
GROSS TOTAL INCOME         10,94,000
Less: Deduction under Chapter VI-A    
U/s 80C:
  • National Saving Certificate
  • Tuition Fees

 80,000

  1,333

        81,333
TOTAL INCOME   10,12,667
Tax Payable    1,16,300*
Add: Health and Education Cess @ 4%       4,652
Tax Liability before TDS   1,20,952
Less: Tax Deducted at Source         1,000
Tax Liability after TDS   1,19,952
Advance Tax Payments
Due Date Advance Tax Payable Amount(₹)
15th June 15% of Advance Tax              17,993
15th Sept. 45% of Advance Tax less advance tax already paid              35,985
15th Dec. 75% of Advance Tax less advance tax already paid              35,985
15th March 100% of Advance Tax less advance tax already paid              29,988
Total             1,19,950

Mode of Payment of Advance Tax ?

As per Rule 125 of the Income Tax Rules, 1962:

  • A corporate taxpayer (i.e., company)  shall pay taxes through electronic payment mode using the internet banking facility of authorized banks.
  • Taxpayer other than a company, who are required to get their accounts audited, shall pay taxes through the electronic payment mode using the internet banking facility of authorized banks.
  • Any other taxpayer can pay tax either electronic mode or by physical mode i.e. by depositing the challan at the receiving bank.

How to Make advance Tax Payment ?

In this video, we will see how to make advance tax payments.

Source

Finance Act, 2020