Advance Tax Under Income Tax – A Complete Guide

With the soon emerging payment of last installment of advance tax for the current financial year 2018-2019, which is due on 15th March for all the assessee (other than 44AD and 44ADA assessee) and 31st March for assessee who are paying tax under section 44AD and 44ADA, let understand the entire concept of advance tax along with answers to various questions which are commonly emerging in to the minds of the taxpayer with regard to the advance tax payment.

One common question that would arise in the taxpayer’s mind is why advance tax? The simple answer to the same is that the income tax forms a major part of the Government’s revenue. The advance tax helps the Government to receive continuous revenue throughout the year and in turn helps the Government to incur timely expenditure.

Present article provides advance tax section, answers to the various questions like what is advance tax and who should pay the advance tax, how is advance tax calculated, can advance tax be paid after due date, is it mandatory to pay advance tax and advance tax due dates for AY 2019-2020.

Advance Tax Section

First of all let us have a look into all the relevant advance tax section, as contained in the Income Tax Act, 1961, which are being summarized herein below –

1. Section 207 – Liability for payment of advance tax;

2. Section 208 – Conditions of liability to pay advance tax;

3. Section 209 – Computation of advance tax;

4. Section 210 – Payment of the advance tax by the assessee of his own accord or in pursuance of an order of assessing officer;

5. Section 211 – Installment of advance tax and due dates;

6. Section 219 – Credit of advance tax;

7. Section 234B – Interest for defaults in payment of the advance tax;

8. Section 234C – Interest for deferment of the advance tax.

What Is Advance Tax And Who Should Pay Advance Tax?

As the name itself is self-explanatory, advance tax means payment of taxes in advance. In other words, ‘pay as you earn’.

Advance tax is payable during a financial year where the amount of tax payable is INR 10,000 or more (section 208).

Provisions of the advance tax shall not apply to an individual resident in India if the following conditions are satisfied (section 207) –

1. The resident individual does not have any income chargeable under the head ‘Profit and gain of business or profession’; and

2. The resident individual is of the age of 60 years or more at any time during the previous year.

It must be noted that advance tax is applicable to all the taxpayer, however, if the resident individual fulfills the above two mentioned conditions, then, he is not required to make an advance tax payment.

How Is Advance Tax Calculated?

Following table helps to understand the technique of advance tax calculation –

PARTICULARS AMOUNT
Income from Salary XXX
ADD Income from house property XXX
ADD Capital Gains XXX
ADD Income from other sources XXX
ADD Profit and gains of business or profession XXX
ADD Agricultural income XXX
LESS Deduction (Chapter VI-A) (XXX)
NET TAXABLE INCOME XXX
INCOME TAX ON NET TAXABLE INCOME XXX
ADD Surcharge XXX
ADD Education cess XXX
ADD Secondary and higher education cess XXX
TOTAL TAX LIABILITY XXX
LESS Rebate (XXX)
LESS TDS/TCS/MAT (AMT) credit utilized (XXX)
ADVANCE TAX PAYABLE XXX

Can We Pay Advance Tax after Due Dates?

Yes, an advance tax can be paid after due dates, however, interest under section 234C would be payable for delay in payment of advance tax.

The interest payable under section 234C is tabulated hereunder for all the assessee (other than assessee paying tax under section 44AD and section 44ADA) –

PERIOD INTEREST PAYABLE INTEREST NOT PAYABLE
On or before 15th June Simple interest payable @1% per month for 3 months on the amount of short fall.(Short fall = 15% Tax actually payable – Tax actually paid) If the advance tax paid by the assessee on the current income on or before 15th June is not less than 12% of the tax due on the returned income.
On or before 15th September Simple interest payable @1% per month for 3 months on the amount of short fall.(Short fall = 45% Tax actually payable – Tax actually paid) If the advance tax paid by the assessee on the current income on or before 15th September is not less than 36% of the tax due on the returned income.
On or before 15th December Simple interest payable @1% per month for 3 months on the amount of short fall.(Short fall = 75% Tax actually payable – Tax actually paid)
On or before 15th March Simple interest payable @1% per month for 1 month on the amount of short fall.(Short fall = Tax actually payable – Tax actually paid)

Interest payable under section 234C is tabulated hereunder for the assessee paying tax under section 44AD and section 44ADA) –

PERIOD INTEREST PAYABLE
On or before 15th March Simple interest payable @1% per month for 3 months on the amount of short fall.(Short fall = Tax actually payable – Tax actually paid)

It is important to note here that interest under section 234C is not payable where short fall is on account of under-estimate or failure to estimate the following –

1. The amount of capital gain;

2. The amount of speculative income (lottery income, gambling income etc.);

3. The income under the head ‘Profit and gains of business or profession’ in cases where the amount accrues / arise for the first time;

4. The amount of tax on certain dividends received from domestic companies (section 115BBDA).

However, interest u/s 234C is not payable in above cases, provided the assessee has paid the whole amount of tax payable on above referred income at the time of paying remaining advance tax instalment or if no instalment is due, the tax is paid before 31st March.

Is It Mandatory To Pay Advance Tax?

Yes it is mandatory to pay advance tax, however, in case of late payment of advance tax, interest under section 234C and under section 234B is payable.

Interest payable under section 234C is explained in the preceding paras. However, interest under section 234B is payable if –

1. The assessee had failed to pay advance tax; or

2. The assessee has paid the advance tax, however, the same is less than 90% of total tax payable.

In case the assessee falls under any of the above cases, the simple interest @1% for a month or part thereof is chargeable for the period from 1st day of April next following the financial year to the date of determination of total income.

Advance Tax Due Dates

Provisions of section 211 of the Income Tax Act, 1961 specifies the installment of advance tax and due dates thereon.

Following table reflects the advance tax due dates for individual and corporate taxpayers [applicable for taxpayers other than assessee covered u/s 44AD(1) or u/s 44ADA(1)] –

ADVANCE TAX DUE DATES PERCENTAGE OF ADVANCE TAX PAYABLE
On or before 15th June 15% of advance tax
On or before 15th September 45% of advance tax
On or before 15th December 75% of advance tax
On or before 15th March 100% of advance tax

Following table reflects the advance tax due dates for taxpayers who has opted for presumptive taxation scheme – business income [section 44AD(1) or section 44ADA(1)]–

ADVANCE TAX DUE DATES PERCENTAGE OF ADVANCE TAX PAYABLE
By 31st March 100% of advance tax