Today is the last date to pay second instalment of advance tax on rental income, dividend & commission

September 15 is the deadline to pay the second installment of advance tax for FY 2023-24.

If you are earning rental income or receiving dividends, commissions, interest, or had capital gains, it's likely you have an advance tax obligation. Generally, for salaried individuals, their employers deduct taxes from pay and remit them to the government on a monthly basis. However, if an employee has additional income sources like the ones listed above, then they may be required to pay advance tax.

Here’s what you really need to know about advance tax.

Who needs to pay advance tax?

As per Section 208 of the Income-tax Act 1961, advance tax is obligatory for individuals whose estimated tax liability for the financial year amounts to Rs 10,000 or higher.

This means that if your total tax liability is expected to be Rs 10,000 or more, you are required to make advance tax payments throughout the year. For a taxpayer, this helps distribute the tax burden evenly over the year, rather than having to pay a large lump sum payment at the end.

It's particularly pertinent for individuals with diverse sources of income beyond a regular salary, as their tax liability may not be fully covered by standard rate of tax deductions at the source.

Who are exempt from paying advance tax?

To begin with, individuals with an estimated tax liability under the threshold of Rs 10,000 for the year do not have to pay advance tax.

Additionally, resident senior citizens, defined as individuals aged 60 years or above during the relevant financial year, who do not have any income from business or profession, are also exempt.

For instance, a senior citizen whose earnings include income from sources such as rental income, pension, interest from bank deposits, and dividends. This is because these incomes do not fall under the category of 'income from business or profession'.

Four instalments of advance tax

Advance tax liability is divided into four instalments. On June 15 each year, 15 percent of the tax liability is due. By September 15, 45 percent should be paid, followed by 75 percent by December 15 and the full amount by March 15.

Individuals filing income tax return under the presumptive taxation scheme (PTS), however, are required to remit the entire advance tax in a single instalment on or before March 15.

Also read: Why presumptive taxation scheme could work for professionals

What if I miss paying advance tax?

Timely payment of advance tax is crucial, as non-compliance can lead to accruing interest at a rate of 1 percent per month on the outstanding amount until it is settled. This penalty interest comes into effect if the shortfall in the advance tax instalment exceeds 25 percent of the required amount. The interest is levied on the deficient amount.

Do I need to fill any form?

Individuals who are liable to pay advance tax must independently gauge their current income and make the necessary advance tax payments. In this scenario, there is no need to furnish the tax department with an estimate or an income declaration form as in the case of filing income tax returns.

Also read: All about filing belated tax returns for FY 2022-23

How to pay advance tax?

You have the option to pay advance tax both offline and online. To make an offline payment, use the tax payment challans (challan No 280) at authorised bank branches endorsed by the tax department.

For online payments, visit the department’s website, www.incometaxindia.gov.in, and access the e-Pay taxes section. This will redirect you to the National Securities Depository Ltd (NSDL) website. Select challan no. 280, input the necessary particulars, and complete the payment.

During the tax payment process, ensure that all details on the challan are accurately filled out. Depending on whether you're a company or an individual taxpayer, choose the relevant option for payment, such as Corporation Tax/Income-tax (other than companies). Additionally, input the correct amount and mode of tax payment.

A common mistake taxpayers make is selecting the incorrect assessment year (AY). Keep in mind that for the current fiscal year (2023-24), the applicable AY is 2024-25. Hence, verify and select the appropriate AY accordingly. Don't forget to provide your Permanent Account Number (PAN). After entering all details, review them on the screen and confirm before proceeding.