Step-by-Step Guide to Advance Income Tax Payment

Advance income tax payment enables taxpayers to pay their taxes in instalments rather than one-time lump sums. This not only eases the payer’s financial burden but also enables a continuous flow of revenue for the government. Here is a quick breakdown of managing this proactive approach to taxes.

Understanding Advance Income Tax Payment

Advance tax means paying your income tax in instalments as specified by the income tax department. This system benefits anyone whose tax liability exceeds Rs 10,000 in a fiscal year. By distributing the tax over the year, taxpayers avoid the year-end financial load and manage their finances better.

The requirement primarily targets those with income from sources other than a salary, such as business profits, rental income, interest, and dividends. It’s worth noting that salaried individuals may also need to pay advance tax if their TDS (Tax Deducted at Source) does not cover their total tax liability.

Who Should Pay Advance Tax?

After accounting for TDS and tax collected at source (TCS), you must pay advance tax if your total tax liability is Rs 10,000 or more. Notably, resident senior citizens who do not run a business or practice a profession are exempt from this requirement. This rule applies to individuals and corporations, including freelancers and consultants, who may have multiple income sources and not enough tax withheld at source. Planning and payment of advance tax help avoid year-end tax burdens and potential penalties.

How to Calculate Your Tax?

Calculating your advance tax involves several detailed steps:

1. Estimate your total income from all sources for the financial year, including salary, business income, interest, dividends, and capital gains.
2. Deduct applicable allowances and losses, such as home loan interest, education expenses, and the previous year’s business losses, to find your net taxable income.
3. Apply the relevant tax rates to your taxable income, considering different slabs and rates for various types of income, to calculate your gross tax liability.
4. Subtract TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) amounts already paid from your total tax to determine the amount needed to be paid as advance tax.
5. Use online calculators or consult a tax professional for precise calculations. This is particularly important if complex deductions, exemptions, or multiple income streams might affect your tax calculations.

Due Dates for Payment

The tax year is divided into four parts for advance tax payments:

• By June 15: Pay 15% of your estimated tax liability.
• By September 15: Increase the total payment to 45% of your tax liability.
• By December 15: Pay up to 75% of your tax liability.
• By March 15: Complete 100% of your tax payment.

The entire tax amount is due by March 15 for those under the presumptive taxation scheme.

Payment Methods

Advance tax can be paid online through the official e-filing portal or any authorised bank. To make an online payment, follow these comprehensive steps:

1. To initiate the payment process, visit the e-filing website and navigate to the ‘e-Pay Tax’ section.
2. Enter your PAN and other required details for identity verification to ensure the payment is attributed to the correct taxpayer account.
3. Select the appropriate advance tax form from the list provided and meticulously fill in the requisite details to calculate the due tax accurately.
4. Choose your payment method, such as net banking, debit card, or UPI, and confirm the transaction, ensuring all data entered is correct.
5. During this process, ensure you download the GST certificate if applicable. This certificate can typically be obtained from the payment confirmation or history page and is important for your records and future reference.

Consequences of Non-Payment

Failing to pay advance tax can lead to significant penalties in the form of interest under Sections 234B and 234C of the Income-tax Act. Section 234B deals with interest for default in payment of advance tax, charging interest on any tax due after the fiscal year ends until it is fully paid. Section 234C addresses interest for deferment of advance tax, applied if the tax is not paid in proportion to the required instalments.

Conclusion

Paying your taxes before the due date helps avoid surprises at the last minute, which may strain your financial position. Planning your advance income tax payment projects you as a law-abiding citizen and offers a peaceful state of mind. Be sure to download the GST certificate after making the tax payments.