The Government of India has made a system to collect income tax in advance from people with high income. That is, payment of tax before the accounting of earnings. Those with higher salaries have to do this work by deducting TDS, while those with income other than salary have to do this work by paying Advance Tax. We have given detailed information about TDS deduction and rates in the previous articles. In this article we will know what is Advance Tax? Who has to pay Advance Tax and when?
What is Advance Tax?
In India, if the income tax liability of any person or organization exceeds or is likely to exceed Rs 10,000 in a year, then he has to deposit income tax in advance before the end of the financial year. You have to make this payment every quarter according to your estimated income. It is mandatory to do so according to section 208 of the Income Tax Act.
In this manner, the tax paid as advance before the end of the financial year is called advance tax. People who earn from business or any other source other than salary, and have taxable income of more than Rs 10,000 in a year, have to pay advance tax.
Advance tax has to be paid in the following situations-
- If you are a businessman and more than 10 thousand rupees tax is made on your income for a year.
- If you are a Freelancer and your annual income is taxed more than 10 thousand rupees.
- You are salaried but earn high income from interest, capital gains, rent etc. Due to which even after deducting TDS, you are liable to pay tax of more than Rs 10,000.
Why is advance tax taken first?
With the provision of advance tax payment, while on one hand the government gets convenience, it is also convenient for the tax payers. How? Let’s understand-
- Consistent income to the government: The government gets income every quarter during the financial year. Out of this income, the government meets the expenses of its departments and ministries. By getting advance tax, the government gets convenience in running its expenses.
- Taxpayers do not have to collect burden: People have to pay their tax liability for the year in about four parts. At the end of the financial year, it may become difficult to pay the full tax in one go. In this way, there is no financial burden on the taxpayers at once.
- Less scope for tax evasion: tax paid before the end of the financial year and There is also an advantage of not being burdened with tax at the same time, the scope of non-payment of tax or evasion of tax is greatly reduced. This benefits the country, and helps in providing more facilities to the citizens.
Advance tax submission dates Dates to deposit Advance Tax
|Last Dates for Depositing Advance Tax Installments||least tax|
|until June 15||Up to 15% of the total Advance Tax|
|up to 15 september||Up to 45% of the total Advance Tax (including the amount deposited earlier)|
|by 15 December||Up to 75% of the total Advance Tax (including the amount deposited earlier)|
|till 15 March||100% of the total Advance Tax (including the amount deposited earlier)|
What happens if you pay more or less advance tax than required?
If you pay income tax in excess of your tax liability during a financial year, you can get that extra tax refunded. Under section 237 of the Income Tax Act, taxpayers have got this right. If the refund amount exceeds 10% of your tax liability, then the government also pays interest at 6% per annum on that additional tax amount.
If during any financial year till March 15, you feel that you have paid less tax than your tax liability, then you can pay your full tax before March 31. That too will be treated like advance tax.
What is the penalty for non-payment of advance tax on time? What is the penalty for missing the dates of payment of Advance Tax?
You have to pay advance tax by 4 deadlines. June 15, September 15, December 15 and March 15. If, according to these dates, you are not able to deposit advance tax, then you have to pay interest on late payment. You have to pay this interest according to two rules-
- Section 234C: Penalty for non-payment by the stipulated date
- Section 234B: Penalty for making payment less than advance tax liability
Now let us explain these two types of penalties in a little detail-
Section 234C: According to this, If you have not paid advance tax by the due dates, then you have to pay interest at the rate of 1% per month along with the payment of outstanding tax. For example, by September 15, you should have paid advance tax up to Rs 1 lakh. But you are not able to repay it till September 15.
Suppose you pay it by 15th December. Then you will have to pay interest for 3 months on 1 lakh rupees at the rate of 1% per month. Which sits 3000 rupees.
Section 234B: According to this, if you have not paid up to 90% of your tax liability by the end of the financial year, then the remaining tax amount will have to be paid by adding interest at the rate of 1% per month. This is treated as a default in tax payment.
Apart from these, if you have been refunded the tax from the Income Tax Department. Later, in the assessment of the department, it is found that you should not have got the refund or should have got less, then you have to return the additional refund amount to the government. An interest of 0.5% is also payable on the amount of such refund.
Who does not have to pay Advance Tax?
- If you are Salaried and do not have any separate source of income, then you do not have to deposit Advance Tax. Because the TDS that is deducted from you is like a kind of advance tax. Your employer deducts the income tax being made on you through TDS and deposits it with the government before the end of the financial year. Its detail is present in your Form 16.
- Such Senior Citizens, whose source of income is not any business, they are also exempted from paying Advance Tax from the financial year 2012.
How To Calculate Advance Tax?
Add up your total income
Add up the estimated annual earnings from all your sources. Add to this the Earning from your Salary, Earning from Interest, Capital Gain, Earning from rent of house or property etc. If you are a freelancer, then add up the estimated earnings through all your clients.
Deduct expenses from income
Deduct the estimated expenses incurred during freelance work from your earning. In this, the rent of your place of work, Internet bill, mobile bill, expenses on repair of computers or other equipment, etc. bills of your travel expenses etc. can be deducted from Total Earning. Your Earning will be calculated on the basis of payment receipts received from your clients.
Also deduct tax deducted income
After your expenses, it is your turn to calculate such investments or expenses which fall under the category of tax deduction under any government scheme or IT Act. Under Section 80C, 80CCC and 80CCD, you are exempted from paying tax on a certain amount on many investments and expenses. The income left by you after deducting these deductions from your income is included in the calculation of tax.
View Tax Slabs
Look at the tax slabs issued by the government for the year in which you are going to pay the tax. On the basis of this slab, tax liability will be made on your income. For example, for the financial year 2020-21, there will be no tax on your income up to Rs 2.5 lakh. On top of this, you will have to pay only 5% tax on income up to Rs 5 lakh.
Similarly, 20% tax will have to be paid on income of 5 to 10 lakh rupees and 30% tax on income above. The figures given here are for an ordinary person or family. Tax Slab Rates of Senior Citizen, Super Senior Citizen, Companies, Institutions etc. are different.
Calculate surcharge, educational cess, rebate
Now see if the situation of Surcharge, Educational Cess, Rebate etc. is not made on your taxable income. If it is, then adjust them too. According to all these situations, decide the amount of advance tax, which you have to deposit.
Capital gains are also included
Since Advance Tax is done according to your total income from all sources. Therefore, capital gain is also included in its calculation. With the calculation of Capital Gain, you may have a problem that Profit or Loss is not per-determined in it. In such a situation, arrangements have been given that after the installation after which the profit is made, the tax made on it should be deposited in the rest of the installment. If you pay the tax, then there will be no late charge on you.
What is the difference between Advance Tax and TDS?
Advance tax has to be deposited by your own, estimating your income, whereas TDS is deducted by your company or employer itself from your income.
You have to pay advance tax only if you are going to pay tax more than Rs 10,000 in that year, while TDS is deducted if your salary exceeds the taxable income. There are also rules for deducting TDS on income above a certain limit in cases of interest, rent, professional income, capital gains, reward etc. Since this amount of tax is deducted directly from your Earning Source itself, hence it is called Tax Deduction On Source i.e. TDS.
The final calculation is made in self-assessment tax.
If you are not able to deposit advance tax on time or TDS is less deducted, then you can deposit the remaining tax in the form of Self Assessment Tax. Self Assessment Tax is deposited after the end of the financial year. Once the financial year is over, TDS or advance tax is of no use. Let us tell you that full tax should be deposited before filing income tax return.