Have you paid your advance tax? The fourth and final instalment of advance tax for FY 22 is due today

Taxpayers are required to pay their annual estimated tax in instalments of 15 percent, 45 percent, 75 percent and 100 percent, on or before June 15, September 15, December 15 and March 15, respectively. It effectively means that they pay as they earn and at the same time the system ensures a steady flow of income tax to the exchequer.

How do you estimate your income?

In order to calculate advance tax liability, it is necessary to first estimate the expected income correctly.

“For computing advance tax, the individual taxpayer needs to estimate the total income that he is likely to earn during the year on which taxes would not be withheld at source (tax is not deducted at source),” said Aarti Raote, a partner at Deloitte India

"The estimation can be done by considering the income levels of the previous year suitably adjusted to reflect changes in incremental income reflecting interest rate changes, property rent receipts etc, income reflecting in Form 26AS, and adding new income bearing investments made during the year, added Raote. Form 26AS contains the details of taxes paid and compliance information," added Raote.

So, make sure you take into consideration all the expected income.

Who needs to pay advance tax?

Every taxpayer—salaried, freelancers, and businesses -- whose estimated income results in tax liability of more than Rs 10,000 in the financial year is required to pay advance tax. A resident senior citizen (an individual aged 60 years or above), not having income from business or profession, is exempted from paying advance tax.

Also, a salaried person who doesn’t have any income other than salary, need not pay advance tax instalments, as employers are required to deduct the applicable tax from monthly salary and pay to the Income Tax Department.

Penal interest for missing payments

If you miss paying advance tax on time or pay less, you attract penal interest. “Any default or shortfall in the payment of 75% of the advance tax results in an interest levy of 1% on such shortfall,” said Raote.

For instance, if your tax liability was assessed on June 15, 2021, i.e. when the first instalment of advance tax become due, as Rs 3 lakh for fiscal 2021-22, you should have paid Rs 45,000 (15 percent of Rs 3 lakh) as the first instalment of the advance tax.

If you had missed paying the entire amount of the first instalment, your total advance tax liability for the second instalment on September 15 would have been Rs 1,35,000 (45 percent of Rs 3 lakh) along with interest on first instalment dues. Interest would have been applicable at 1 percent per month for three months i.e., June 15 to September 15, Rs 1,350 (3% of Rs 45,000—first instalment dues). So, you should pay a total of Rs 1,36,350 as tax to be on the right track.

If you also failed to clear the second instalment of advance tax liability completely, your total advance tax liability for the third instalment would have been Rs 2,25,000 (75 percent of Rs 3 lakh). Interest would have been applicable at 1 percent per month for six months i.e., June 15 to December 15 on part of first instalment dues (Rs 45,000) and for three months i.e., September 15 to December 15 on part of the second instalment (Rs 90,000 -- Rs 1,35,000 minus Rs 45,000), Rs 2,700 and Rs 2,700 respectively. The sum shall be paid along with the third instalment of advance tax liability.

If you have not paid any advance tax instalment to date, you should pay the entire Rs 3 lakh when the fourth instalment becomes due on March 15. Interest will be applicable at 1 percent per month for nine months i.e. June 15 to March 15 on part of first instalment (Rs45,000), for six months i.e. September 15 to March 15 on part of the second instalment (Rs 90,000) and for three months i.e., from December 15 to  March 15 on part of the third instalment (Rs 90,000) --  i.e Rs 4,050, Rs 5,400 and Rs 2,700 respectively. which shall be due along with the fourth and the final advance tax liability.

Further, if you fail to pay the final instalment of advance tax, the interest calculation will continue until you pay the due taxes. Interest will be applicable at 1 percent per month for one month i.e., March, Rs 3,000, which shall be due along with self-assessment tax liability.

While calculating final tax at the time of self-assessment, let’s assume the return filing date as July 31, 2022. You need to pay tax along with interest at the time of filing of return as mentioned below:

The interest will not be levied if the shortfall is within a specified range or in some other cases.

In simple words, this means that if you pay a large chunk of your advance tax instalment--but not the full amount--then the interest penalty will not be imposed on you. For instance-- and we told you so far--you are meant to pay advance tax of 15 percent of your annual estimated income by June 15. And 45 percent by September 15. However, if by June 15 you end up paying at least 12 percent (instead of the mandated 15 percent) or 36 percent by September 15 (instead of the mandated 45 percent), then no penalty will be imposed. The logic here is you have at least paid a large chunk of your advance tax liability.

How to pay?

You can pay the advance tax offline as well as online. To pay offline, use tax payment challans (challan no. 280) at bank branches authorised by the Income Tax Department.  For paying 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.