Know All About Advance Tax. Who Is Liable To Pay? How To Compute Advance Tax?

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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.

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”.

  • 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

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].

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 DateAdvance Tax Payable

Amount(₹)

15th June15% 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 March100% of Advance Tax less advance tax already paid             29,988
Total           1,19,950

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.

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

Source

Finance Act, 2020

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