Advance Tax: How to Pay |Due Dates and more…

Budget 2016 proposed many changes related to tax laws. It also impacts the payment schedule of advance tax. This post explains the concept of Advance Tax, the new rules and answers the following questions:

  • Who needs to Pay Advance tax?
  • How to Calculate?
  • How to pay Advance Tax?
  • Deadline to Pay Advance Tax?
  • Whats the Penalty for Non-Payment?

What is Advance Tax?

Advance Tax Payment - New Rules in Budget 2016

Advance Tax Payment – New Rules in Budget 2016

We all know that we need to pay income tax in case the total income for the financial year exceeds the income tax exemption limit. But the government wants you to pay taxes as you earn rather than paying it all at the end of the financial year. This helps government to keep running for the entire year.

In case your tax liability is more than Rs 10,000 for the financial year, you need to pay Advance Tax as per below schedule (revised in Budget 2016):

  1. 15% of total tax by June 16
  2. 45% of total tax by September 16
  3. 75% of total tax by December 16 and
  4. 100% of total tax by March 17

Before this revision advance tax was paid in 3 installments in September, December and March.

Who Needs to Pay Advance Tax?

Advance tax needs to be paid by everyone whose tax liability exceeds Rs 10,000 for the financial year. However Senior citizens with age of more than 60 years who do not have income from business/profession, need not submit advance tax.

Professionals such as doctors, lawyers, architects with annual revenue of Rs 50 lakh or less and who plan to take advantage of newly introduced Presumptive scheme in Budget 2016 can pay advance tax at one go on or before March 15.

Calculating Advance Tax:

You can use the Income Tax Calculator to know your Tax liability for the financial year. Next you need to pay the relevant percentage of tax by respective due dates.

Paying Too Much Tax? Download Free e-book to Save Taxes for FY 2016-17

The advance to be paid would be net of TDS (Tax Deduction at Source) deducted on your behalf. Let us understand this by example.

Assume that Amit needs to pay total tax of Rs 1 Lakh for this financial year. Also some of his income is from fixed deposits with bank. The bank while paying interest deducts TDS (Tax Deduction at Source) at 10% of the interest and submits it to income tax department.

Amit’s advance tax installment for June would be Rs 15,000 (15% of Rs 1 Lakh) but the bank has already deducted TDS of Rs 10,000. Amit should pay advance tax net of TDS. So he needs to pay Rs 5,000 (15,000 – 10,000) as the advance tax installment for September.

Advance Tax Details by Income Tax Department

Advance Tax Details by Income Tax Department (Click to enlarge)

Advance Tax for Salaried Tax Payers:

Most of salaried tax payers are not aware about Advance tax concept mainly because it’s taken care by their employers. If you check your Form 26AS, you can see that your employer has deducted tax every month from your salary and paid to the I-T Department. This is the advance tax deposited by your employer on your behalf.

Advance Tax for Salaried Tax Payers - Form 26AS

Advance Tax for Salaried Tax Payers – Form 26AS

But there is a catch, in case you are salaried and also have income from other sources like fixed deposits, side business etc – you must calculate your tax liability and pay advance tax accordingly. For e.g. you are in 30% tax bracket and are expecting Rs 1 lakh as interest income over the financial year. You will need to pay advance tax as required.

Situations where Salaried tax Payers should pay Advance Tax:

  • Have changed company and not declared the previous income to the new company. In this case the new company calculates and deposits lower tax than required.
  • Have income from rental income (not declared to employer), fixed deposits, business or other sources
  • Have taxable capital gains due to sale of property, shares, mutual funds, gold etc

The above situations are just examples to give you an idea.

Also Read: How are Mutual Funds Taxed?

Easy way out?

There is an easy way out. You can declare the income from other source up front while you make your investment declaration in April to your employer. They would calculate the tax accordingly and deposit the advance tax on your behalf.

How to Pay Advance Tax?

The Advance tax can be paid both online or offline. For offline you need to fill Challan 280 and deposit the money along with the Challan to the approved bank branches.

For online mode you can look into the post below.

Help with Online Payment: Use Challan 280 to Pay Self Assessment Tax Online

The only difference is you will need to select (100) ADVANCE TAX Option instead of (300) SELF ASSESSMENT TAX option in Challan 280. Rest everything remains the same.

select (100) ADVANCE TAX Option instead of (300) SELF ASSESSMENT TAX

select (100) ADVANCE TAX Option instead of (300) SELF ASSESSMENT TAX

Penalty for not Paying Advance Tax?

In case you do not pay Advance Tax as per above schedule you will need to pay penalty of 1% simple interest for every month of delay u/s 234(C). Let us understand this by an example:

Assume that your total tax liability for the financial year 2016-17 is Rs 1 Lakh. So as per above schedule you will need to pay

  1. Ra 15,000 (15% of Rs 1 Lakh) by June 15, 2016
  2. Rs 45,000 (45% of Rs 1 Lakh) by September 15, 2016 [45% includes 15% of June and 30% of September installment]
  3. Rs 75,000 (75% of Rs 1 Lakh) by December 15, 2016
  4. Rs 1,00,000 (100% of Rs 1 Lakh) by March 15, 2017

Now in case you miss the first installment, you will need to pay a penalty of Rs 150 (1% of Rs 15,000) for every month of delay.

Case 1:

You did not pay in June but paid entire Rs 45,000 on September 15. In this case you will need to pay penalty of Rs 450 (1% of Rs 15,000 X 3 months).

Case 2:

You did not pay anything in June, September and December and made all the payment in March. In this case you will need to pay the penalty as follows:

  • For June installment: Delay of 9 months = 1% of 15,000 X 9 = Rs 1,350
  • For September installment: Delay of 6 months = 1% of (45,000 – 15,000) X 6 = Rs 1,800
  • For December installment: Delay of 3 months = 1% of (75,000 – 45,000) X 3 = Rs 900
  • Total Penalty u/s 234(C) = Rs 1,350 + 1,800 + 900 = Rs 4,050

You can deposit this amount with the final tax installment. So instead of Rs 1 lakh you need to pay additional Rs 4,050 as penalty for not paying advance tax on time. The tax liability has increased by 4%!

What if the Estimated Income Changes after First Installment?

It may so happen that the estimated income for the financial year changed after you paid the first installment in June. The income may increase or decrease. You can adjust the same in the next installment to be paid in September, which has to be 45% of the new tax liability (in sync with the changed income).

To Conclude:

You should calculate your Tax liability for the year and check if you have complied with the Advance Tax installments. In case you do not do so you need to pay penalty of 1% per month for every month of delay which can increase total tax liability by up to 4% (as in the example above). Salaried tax payers should also keep watch on income from other sources and comply with Advance tax payment.

Have you paid your Advance Tax?

2 thoughts on “Advance Tax: How to Pay |Due Dates and more…

  1. ========================================
    Assume that your total tax liability for the financial year 2015-16 is Rs 1 Lakh. So as per above schedule you will need to pay

    Rs 30,000 (30% of Rs 1 Lakh) by September 15, 2015
    Rs 60,000 (60% of Rs 1 Lakh) by December 15, 2015
    Rs 30,000 (30% of Rs 1 Lakh) by March 15, 2016
    =======================================

    This looks incorrect since it adds to 120,000.
    I believe you have to pay 30k by Sept 15, another 30k by Dec 15 and rest 40k on March 15.

    • Thank you for pointing this. There was typo. Have corrected it now. It should have been Rs 1,00,000 (100% of Rs 1 Lakh) by March 15, 2016

      Your understanding it correct. What I have written is the cumulative tax to be paid at each deadline.

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