Advance Tax under the Income Tax Act, 1961

Applicability

As per the provisions of Section 208 Advance Tax shall be payable during a financial year in every case where the amount of such tax payable by the assessee during that year is ten thousand rupees or more. However the provisions are not applicable to individual who is of sixty years or more and does not have any income chargeable to tax under the head "Income from Profits and Gains from business and professions". Further the Assessing Officer may require an individual to pay an advance tax at any time during the financial year but not later than the last day of February, by order in writing if he is of the opinion that such assessee is liable to pay advance tax.

Computation of Advance Tax

Advance tax is calculated on the basis of estimated income of the assessee during the year multiplied by the rates of income tax in force in accordance with the Finance Act. Applicable Surcharge and Health cess sholud be taken into consideration while calculating advance tax. Such tax shall be reduced by any tax deducted or collected at source.

Due Dates for Payment of Advance Tax

All assessees (other than the eligible assessee as referred to in Section 44AD or section 44ADA)

• First Installment: Minimum 15% of the advance tax computed to be paid by 15th June of every year;

• Second Installment: Minimum 45% of the advance tax computed to be paid by 15th September of every year;

• Third Installment: Minimum 75% of the advance tax computed to be paid by 15th December of every year;

• Fourth & Final Installment: Minimum 100% of the advance tax computed to be paid by 15th March of every year;

Taxpayers who opted for presumptive taxation scheme of section 44AD or section 44ADA

• Minimum 100% of the advance tax computed to be paid by 15th March of every year.

Note: Following formula must be used for calculating incremental advance tax payable for each installment:

(Estimated Tax for the year) X (Percentage of Applicable Installment) - (Advance Tax already paid for the year)

Consequences of Non Payment of Advance Tax

Interest under Section 234B

If the assessee fails to pay the advance tax within the stipulated time or where the advance tax paid is less than ninety percent of the self assessed tax then the assessee is liable to pay simple interest at the rate of one percent for every month or the part of the month on differential(shortfall) tax calculated from 1st April following the financial year for which tax was required to be paid.

Interest under Section 234C

Interest under section 234C is levied, if advance tax paid in any installments is less than the required amount. Simple interest of one percent per month or part of the month is levied on the differential(shortfall) tax for a period of three months, in case of short fall in payment of first, second and third installment and for one month, in case of short fall in payment of last installment.

In case of assessees (other than those who opted for presumptive taxation scheme under section 44AD or section 44ADA), interest shall be levied-

• If advance tax paid on or before 15th June is less than 12% of advance tax payable;

• If advance tax paid on or before 15th September is less than 36% of advance tax payable;

• If advance tax paid on or before 15th December is less than 75% of advance tax payable;

• If advance tax paid on or before 15th March is less than 100% of advance tax payable;

In case of taxpayers who opted for presumptive taxation scheme of Section 44AD or section 44ADA interest shall be levied if advance tax paid on or before 15th March is less than 100% of advance tax payable.

No interest under section 234C is levied if the shortfall in payment of advance tax is due to failure to estimate tax on capital gains, income from winning of lotteries etc. or dividend received from the domestic company exceeds Rs. 10,00,000/- or income from new business provided the assessee pays the required advance tax on such income as a part of immediate following installments or till 31st March, if no installment is pending.

Illustration

Mr. A age 23 has Estimated Income from Business of Rs. 5,00,000/- and Estimated Income from Other Sources for Rs. 50,000/-during the F.Y. 2020-21. He estimates no TDS or TCS for the year.

Since tax payable by Mr. A is likely to exceed Rs.10,000/- during the F.Y. 2020-21 under both the old and the new tax regime he is liable to pay advance tax.

Mr. A is likely to benefit under the new regime as the tax payable is Rs. 18,200/- (old regime Rs. 23,400/-). Mr. A must pay following advance tax installments:

• First Installment of 15% of tax computed i.e. Rs. 2,730/- to be paid before 15th June, 2020;

• Second Installment of 45% of tax computed i.e. Rs. 8,190/- (Incremental Tax of Rs. 5,460/-) to be paid before 15th September, 2020;

• Third Installment of 75% of tax computed i.e. Rs. 13,650/- (Incremental Tax of Rs. 5,460/-) to be paid before 15th December, 2020;

• Fourth and Final Installment of 100% of tax computed i.e. Rs.18,200/- (Incremental Tax of Rs. 4,550/-) to be paid before 15th March, 2021;

If Mr. A does not follow the above schedule for payment of advance tax or does not pay the advance tax then he will likely pay the tax along with Interest under Section 234B & 234C at the time of filling Income Tax Returns.

Steps to Pay Advance Tax Online

1) Visit the URL and select challan number ITNS 280.

2) Select Tax Applicable (0021) Income-Tax (Other Than Companies) or (0020) Corporation Tax for Companies.

• Select (100) Advance Tax as type of payment.

• Select the mode of payment and the bank through which the payment has to be done.

• Enter your PAN.

• Select Assessment Year

• Fill your contact details.

• Enter captcha code and click on proceed.

3) Verify the details entered and click on the button “Submit to the bank”.

4) Log in your retail/personal net banking account to make the payment.

5) Enter the total tax amount in the field basic tax and click on the button Submit/Make payment.

6) After making the payment please download a copy of challan and keep it in your records.