Section 208 of the Income Tax Act is an important provision that deals with the payment of advance tax. It is applicable to all taxpayers who have a tax liability of Rs. 10,000 or more in a financial year. In this blog, we will take a closer look at the provisions of Section 208 and its implications for taxpayers.
What is Advance Tax?
Advance tax is the tax that is paid by a taxpayer in advance, instead of paying the entire amount at the end of the financial year. It is paid in installments, as prescribed by the Income Tax Act. The purpose of advance tax is to ensure that the government receives a regular flow of revenue throughout the year, rather than having to wait till the end of the year to collect taxes.
Provisions of Section 208
Section 208 of the Income Tax Act specifies the rules for payment of advance tax. The section states that if a taxpayer has a tax liability of Rs. 10,000 or more in a financial year, they are required to pay advance tax in installments. The installments are to be paid on or before the due dates specified by the Act.
The due dates for payment of advance tax are as follows:
- On or before 15th June – 15% of the estimated tax liability
- On or before 15th September – 45% of the estimated tax liability
- On or before 15th December – 75% of the estimated tax liability
- On or before 15th March – 100% of the estimated tax liability
It is important to note that the estimated tax liability should be calculated after taking into account any TDS (Tax Deducted at Source) that has been deducted. This means that if you have any income on which TDS has been deducted, you can reduce the estimated tax liability accordingly.
Consequences of Non-Payment of Advance Tax
If a taxpayer fails to pay advance tax on or before the due dates specified by the Act, they may be liable to pay interest under Section 234B and Section 234C of the Income Tax Act.
Under Section 234B, if the taxpayer fails to pay advance tax, they will be charged interest at the rate of 1% per month or part of a month on the amount of tax that should have been paid. This interest is calculated from the due date of the first installment of advance tax till the date of actual payment.
Under Section 234C, if the taxpayer fails to pay any installment of advance tax on or before the due date, they will be charged interest at the rate of 1% per month or part of a month on the amount of tax that should have been paid. This interest is calculated from the due date of the installment till the date of actual payment.
Who is required to pay Advance Tax?
As mentioned earlier, taxpayers who have a tax liability of Rs. 10,000 or more in a financial year are required to pay advance tax. This includes individuals, HUFs (Hindu Undivided Families), partnership firms, companies, and any other entity that is liable to pay income tax. The tax liability is calculated after taking into account any deductions and exemptions that are applicable.
How to calculate Advance Tax?
To calculate advance tax, the taxpayer must estimate their total income for the financial year, including all sources of income such as salary, business income, capital gains, and interest income. From this, they must deduct any allowable deductions and exemptions to arrive at their taxable income.
Once the taxable income is determined, the taxpayer must calculate the tax liability using the applicable tax rates. They must then deduct any TDS that has been deducted from their income during the year. The balance amount is the estimated tax liability on which advance tax must be paid.
For example, let’s say Mr. A estimates that his total income for the financial year will be Rs. 10 lakh. After deducting allowable deductions and exemptions, his taxable income is Rs. 8 lakh. The tax liability on this amount is Rs. 65,000.
Suppose Mr. A has received TDS of Rs. 10,000 during the year. His estimated tax liability after deducting TDS is Rs. 55,000. He must pay advance tax in installments as per the due dates specified by the Act.
How to pay Advance Tax?
Advance tax can be paid using Challan 280 either online or offline. Online payment can be made through the income tax department’s website using net banking or debit/credit cards. Offline payment can be made by submitting the challan at designated bank branches.
It is important to ensure that the correct details are entered while making the payment, including the correct assessment year, PAN, and the amount of tax being paid.
Conclusion
Section 208 of the Income Tax Act is an important provision that requires taxpayers to pay advance tax if their tax liability is Rs. 10,000 or more in a financial year. The tax must be paid in installments as per the due dates specified by the Act. Failure to comply with these provisions can result in the taxpayer being liable to pay interest. Therefore, it is important for taxpayers to calculate their estimated tax liability correctly and pay their advance tax on time.
Read more useful content:
- section 145 of income tax act
- section 10e of income tax act
- section 9 of the income tax act
- section 94b of income tax act
- section 206aa of income tax act
Frequently Asked Questions (FAQs)
Q: Who is required to pay Advance Tax as per Section 208 of the Income Tax Act?
A: Any taxpayer whose estimated tax liability for the financial year is Rs. 10,000 or more is required to pay Advance Tax.
Q: What is the due date for payment of Advance Tax as per Section 208?
A: Advance Tax must be paid in installments throughout the financial year. The due dates for payment of Advance Tax are 15th June, 15th September, 15th December and 15th March.
Q: What happens if a taxpayer fails to pay Advance Tax as per Section 208?
A: If a taxpayer fails to pay Advance Tax, they will be liable to pay interest under Section 234B and 234C of the Income Tax Act.
Q: How is Advance Tax calculated as per Section 208?
A: To calculate Advance Tax, the taxpayer must estimate their total income for the financial year and deduct any allowable deductions and exemptions. The tax liability is then calculated using the applicable tax rates, and any TDS already deducted during the year is deducted from this amount to arrive at the balance tax liability.
Q: Can I pay Advance Tax offline as per Section 208?
A: Yes, Advance Tax can be paid offline by submitting Challan 280 at designated bank branches.
Q: What is the penalty for non-payment or late payment of Advance Tax as per Section 208?
A: If Advance Tax is not paid or paid late, the taxpayer will be liable to pay interest under Section 234B and 234C of the Income Tax Act. In addition, penalty under Section 221 can also be imposed for default in payment of tax.
Q: Is it mandatory to pay Advance Tax as per Section 208?
A: Yes, it is mandatory for taxpayers to pay Advance Tax if their estimated tax liability for the financial year is Rs. 10,000 or more. Failure to pay Advance Tax can result in interest and penalty being levied by the income tax department.
