In order to ensure regular flow of funds to the exchequer, the income tax department has framed rules for tax deduction at source (TDS) and advance tax payment.
Every person whose estimated tax liability for the financial year is Rs 10,000 or more is required to pay advance tax in four instalments – 15 percent, 45 percent, 75 percent and 100 percent – on or before June 15, September 15, December 15 and March 15, respectively of the financial year.
If you miss advance tax payments or delay them, there is penal interest on the taxes due, under section 234C – at the rate of 1 percent a month or part of the month.
Overcome misunderstanding: Two common misconceptions exist.
Advance tax liability doesn’t apply to the salaried
A salaried person who doesn’t have any income need not pay advance tax instalments, as employers are required to deduct the applicable tax from the monthly salary. But if there are other sources of income, advance tax payment may come into play. “However, there’s a common misconception among taxpayers that they are not required to pay advance tax if TDS has been deducted. However, it is not true. The liability to pay advance tax arises, as soon as the difference between the total tax liability of a taxpayer and the tax deducted at source exceeds the prescribed limit,” says Sandeep Sehgal, Director-Tax and Regulatory, AKM Global.
“People often believe their entire tax liability is discharged by way of TDS and that there is no need to pay advance tax. This happens more in cases where some transactional income is earned during the year on which either no TDS is deducted or TDS is not sufficient to meet the actual tax liability as per the applicable tax slab,” says Shailesh Kumar, Partner, Nangia & Co LLP
Senior citizens are exempt from paying advance tax
In order to reduce the hardship and hassle for senior citizens, a resident senior citizen (an individual of age 60 years or above) is not required to pay advance tax. However, not all senior citizens are exempt from paying the advance tax. “Senior citizens who have income from business and profession, apart from income under other heads of income, are required to pay advance tax. But if the senior citizen doesn't have income from business and profession, then the payment of advance tax is not required.” says Sehgal.
Errors to avoid
Not taking into account income from different sources
While calculating your advance tax liability, you must account for all incomes, irrespective of how small they might be. “Taxpayers often do not account for interest on savings bank account or fixed deposits, income from sale of mutual funds, income from sale of property and so on while estimating their advance tax liability. Subsequently, at the time of filing income-tax returns, when the actual tax liability is calculated, a significant amount is added to tax liability of taxpayers on account of interest due to shortfall in payment of advance tax,” says Kumar.
Wrong details and assessment year
While paying the advance tax, make sure you give the correct information and assessment year. “The assessment year should be selected carefully, as otherwise it may not be appropriate for the current year,” says Kumar. For the current financial year 2021-22, the assessment year is 2022-23, so while paying the second instalment of advance tax, choose AY as 2022-23.
How do I pay?
You can pay the advance tax offline as well as online. To pay it offline, use tax payment challans (challan no. 280) at bank branches authorised by the Income Tax Department. For paying it online, log on to the income tax department’s website, www.incometaxindia.gov.in, and click on e-Pay taxes. You will then be directed to the National Securities Depository Ltd (NSDL) website. Click on challan number 280, fill in the required details and make the payment.