Advance Tax – Payment Process, Penalties, & Calculation of Advance Tax

Advance Tax

As an Indian citizen if your income exceeds the basic exemption limit then an Individual, Business, Profession, etc need to pay tax under the Income Tax Act, 1961. In case the tax liability exceeds Rs. 10,000 in a financial year then you will have to pay an advance tax under Section 208.

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What is Advance Tax?

Advance Tax is a form of tax which is paid in advance when your tax liability is more than Rs. 10,000 in a year and you must pay the tax in the year in which you received the income. ‘Pay as you earn’ scheme is another name for Advance tax which is widely known.

Advance tax is a part-payment of your tax liability which has to be paid on the basis of estimated income. Under this, the tax liability is distributed in installments within the same financial year.

Who should pay Advance Tax?

An individual who is an employee and there is no other source of income then he need not pay advance tax, as the employer will deduct the advance tax in the form of TDS (deduct tax at source). In case the individual has other source of income in addition to the salary then it is important to pay advance tax. For instance, a salaried employee is earning from other sources as well then, he also needs to pay advance tax to the government.

Businessmen and Professionals will have to pay advance tax as their tax liability can be huge.

Some of the other income sources are:

  • Winnings earned from a lottery or races.
  • Income received from house property.
  • Interest on fixed deposits.
  • Income received via capital gains on shares.

Advance Tax Paid by:

Salaried or self-employed: A salaried employee having other sources of income as well or a self-employed person needs to pay advance tax. Senior citizens above 60 years need not pay advance tax if he/she does not own any business.

Businesses: If you run a business then you have to pay advance tax and those who opt for presumptive taxation scheme under section 44AD, are required to pay the whole advance tax on or before 15th March.

Professionals: If you are a Professionals like CA, Advocate, Teacher, etc then you need to pay advance tax and if you come under the presumptive scheme under section 44ADA then you are required to pay the whole advance tax on or before 15th March.

Process of filing advance tax

An individual can pay advance tax in both the medium through online and offline

Steps to pay Advance Tax online:

  • Visit Government website and select challan number ITNS 280

  1. Select the Following Details in the Challan number ITNS 280
    • Select ‘(0021) Income-Tax (Other Than Companies)’ in Tax Applicable option and Select ‘(300) Self-Assessment Tax’ in type of payment option.
    • Select the mode of payment options ‘Net-banking’ or ‘Debit Card’ to make the payment.
    • Enter your Pan number > Select Assessment Year.
    • Enter your complete address and contact details.
    • Enter captcha code > click on proceed.
  1. Cross-check your details, select “I agree” checkbox and click “Submit to the bank”.
  2. Log in your net banking to make the payment, enter the advance tax amount and click Make payment.
  3. After-tax payment, you will receive a challan with all the details.

Steps to pay Advance Tax offline:

Advance tax can be paid by challans at the Income Tax Department’s authorised banks.

  1. Visit your branch and ask for tax payment challan 280.
  2. Fill all the important details in tax payment challan 280, and the submit challan form to the relevant bank counter along with the amount to be paid as Tax.
  3. Take the deposit receipt from the bank official with a seal and sign.

Advance Tax will reflect within 10 days of payment in your Form 26AS.

Advance Tax Payment Schedule:

Advance Tax – FY 2019-20 schedule for self-employed and businessmen:

Amount PayableInstalment Date
Not less than 30% of the advance tax liabilityOn or before 15th Sep 2019
Not less than 60% of the advance tax liabilityOn or before 15th Dec 2019
100% of tax liabilityOn or before 15th March 2019

Advance Tax – FY 2019-20 (apart from the ones who are covered under section 44AD):

Advance Tax PayableDue Date
Not less than 15% of the advance tax liabilityOn or before 15th June 2019
Not less than 45% of the advance tax liabilityOn or before 15th Sep 2019
Not less than 75% of the advance tax liabilityOn or before 15th Dec 2019
100% of the advance tax liabilityOn or before 15th March 2020

For taxpayers who have opted for a Presumptive Taxation Scheme under section 44AD & 44ADA, can pay 100% of advance tax on or before 15th March.

Penalties Imposed on Non-Payment of Advance Tax

If a Taxpayer misses the first deadline (15 September) to pay 30% of tax liability, then the individual has to pay interest. The interest is computed as 1% interest on the defaulted amount for every month until the tax is paid off completely. The same interest penalty will be applicable if you don’t pay by the second or third deadline.

How to Calculate the Penalty?

Below is the example of calculation of advance tax penalty;

Atul’s current year tax liability is Rs 20,000. He files his tax return on May 30th instead of March 15th of the assessment year.

The interest to be paid is: Rs 20,000 x 1% x 2 = Rs 400

Atul needs to pay Rs. 400 as Penalty

Few Important Points Regarding Advance Tax

  • NRIs need to pay advance tax on their income in India if the current year tax liability is more than Rs 10,000.
  • If you fail to pay advance tax by 15th March, you can pay by 31st March of the year and also be treated as advance tax.
  • Self-assessment tax is also considered as advance tax.
  • All deductions can be considered while paying advance tax.
  • Individuals opting for the Presumptive Tax Scheme need to file taxes before March 15.
  • Challan 280 is used to make payment for advance tax.
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