Are you paying your income tax only
at the end of the financial year ? If your answer is YES, then understand that
you are doing it in wrong manner. Today we will learn about Advance Tax which
is not widely understood and its quite important thing to know. I know that
majority of the people don’t follow this process and pay the income tax at the
end of the year only (in fact on the last minute many times), But today you
should understand if advance tax is applicable in case your case or not.
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What is Advance Tax ?
As the name suggests, Advance Tax is part payment
of your income tax liability in advance. So instead of paying everything at the
end of the year, you pay it 3 times in a year in parts. The concept of Advance
tax exists because govt wants you to pay income tax as you earn month after
month and not at the end of the year. Advance tax is to be paid when your
annual tax liability exceeds Rs 10,000 overall .
However important point is that Advance tax is
applicable on your Income from sources other than your Salary like
- Interest on FDs or Savings bank deposits exceeding Rs. 10,000/-
- Rental income on House Property/properties
- Capital Gains on sale of Mutual Funds or Shares
- Income from any other sources not mentioned as above.
Which means that if you are a salaried employee who
does not have any other income source and if your employer deducts TDS regularly, then Advance Tax is
not applicable in your case. You don't need to worry about it.
On which date you have to pay Advance Tax ?
You have to pay advance tax 3 times in a year,
which is 15th Sept , 15th Dec and 15th Mar and you should be paying not less
than 30% , 60% and 100% of your income tax liability before these dates. Below
picture makes it clear for you.
Which means that if your income tax liability for a
year is Rs 1,00,000 , then you should pay advance tax of Rs 30,000 by 15th
Sept, another Rs 30,000 by 15th Dec and rest Rs 40,000 by the end of 15th Mar
What if I don’t pay Advance Tax on time ?
If Advance Tax is applicable in your case, then you
should be paying it on time, but if you don’t pay it on time, then you can pay
it on the next due date along with the interest. So those who have not paid the
first installment (i.e. September 15) of Advance Tax (if applicable to you),
then you can pay it together with second installment (on of before 15th Dec), but
with interest on the first installment for deferment of the same by three month
and if you are not paying it even on Dec 15th , then you can pay it by the end
of the year along with the interest.
You will be charged with penalty under Sec 234B and
234C in case you don’tpay your advance tax on time. Let me quickly share what
is sec 234C and sec 234B
Understanding Penalty under Section 234C
Lets first understand sec 234C. Under this section,
if you don’t pay your installments of advance tax on time, then you are charged
1% of simple interest for next 3 months on the amount of shortfall. So this is
the penalty to be paid because of DELAY!
Understanding Penalty under Section 234B
If your total advance tax paid by last due date
(15th Mar) is less than 90% of your advance tax liability, then you will have
to pay 1% interest on the balance amount each month until you complete the
payment. which means that suppose your income tax liability is Rs 1,00,000 in
total and if you have not paid anything upto 15th Mar, then you will be charged
1% on the outstanding balance (Rs 1 lac in this case) each month, unless you
pay it, so if you pay in June , then you will be charged for 3 months penalty
and it would be Rs 3,000 in total other than penalty under sec 234C.
Lets understand sec 234B and 234C with help of case
studies. Lets assume that your total Income Tax payment for the year would be
Rs 50,000, then as per rules of Advance tax, you should be paying
- Rs 15,000 by 15th Sept
- Another Rs 15,000 by 15th Dec
- And Rest 20,000 by 15th Mar
Now imagine you don’t pay any advance tax , then
how much penalty you will pay under sec 234B and 234C under various situations
? Below I have explained 4 situations where you pay your full income tax on
different dates. Check out how much penalty you will have to pay under these
situations !
How to pay Advance Tax ?
Now comes the final question, that how can you pay
your advance tax ? Most of the people are worried on this, as they feel that
paying advance tax would be very tough or involves lots of hassles, but thats
not correct. You can make payment of your advance tax in less than 5 min.
There are mainly two ways of payment advance tax.
1. Offline option
Almost all the banks have tie up with govt for
accepting the advance tax from the taxpayers, you can go to the banks which
have the tie up and fill up the challan number 280 and pay your advance tax to
them.
1. Online Payment of Advance Tax
The other faster way to make payment online. Here
is how it works
2. Choose Advance Tax option and other
details and make payment
When come to the next page, you will have to choose
various details here. Make sure you choose your
- PAN Number (of utmost importance)
- Advance Tax (under Type of Payment)
- Email, Phone and Address details
- Assessment year
Once you choose these details, you can then click
on “proceed” and it will connect you to the Bank which you had selected, It
will show you your NAME on the next page, so that you can confirm there was no
mistake from you end, then you can make the payment online, and you will be
able to print the receipt online (you will also get it on email)
Are you paying your Advance Tax
I guess, you are now clear about the advance tax
and how its calculated . Its a good practice to pay your advance tax on time
and do not delay it because it can mean a penalty of few thousand rupees in
most of the cases. I know its tempting to delay the headache and complete the
payment once in a year, a lot of people might be ok with paying some penalty,
but then you also invite related problems with it. Pick your choice.
