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Advance Tax

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Now-a-days all assessees must be receiving a reminder message for paying advance tax by 15.03.2019. But why advance tax? The answer to this question lies in the name itself i.e. pay tax in advance to avoid lump sum payment at the end of year.

What is advance tax?

Advance tax means pay as you earn. It is paid in installments during the financial year as per due dates. The rationale behind advance tax is to ensure continuous earning of revenue by government during the financial year. It is to be paid mandatorily by the assessee unless exempt.

Who all are liable to pay advance tax?

If the tax liability is Rs. 10,000 or more: If the total tax liability during a financial year is Rs. 10,000 or more then you are liable to pay advance tax. It is applicable to all tax payers, salaried class, freelancers, businesses etc. 

As per S. 207 of the Income tax act, a resident individual is not liable to pay advance tax if he/she does not have any chargeable income under head profit & gain of business or profession and are of age 60 years or more during the previous year.

The taxpayer who opted for presumptive Scheme under S. 44AD(1) or S. 44ADA(1).

How the advance tax is calculated?

Income from Salary

(+) Income from house property

(+) Capital Gains

(+) Income from other sources

(+) Profit and gains of business or profession

(+) Agricultural income

(-) Deduction (Chapter VI-A)

NET TAXABLE INCOME

INCOME TAX ON NET TAXABLE INCOME

(+) Surcharge

(+) Education cess

(+) Secondary and higher education cess

TOTAL TAX LIABILITY

(-) Rebate

(-) TDS/TCS/MAT (AMT) credit utilized

ADVANCE TAX PAYABLE

Late payment of advance tax

Now there may be situations when you forgot the due date leading to late payment. Then, if the advance tax is paid after the due dates, interest is to be payable by the assessee as per S. 234C. However, this payment of interest is not required when the shortfall is on account of amount of capital gain, amount of speculative money, income under the head ‘Profit and gains of business or profession’ where the amount accrues / arise for the first time and the amount of tax on certain dividends received from domestic companies.

So, the payment of advance tax is on time is mandatory to avoid the levy of interest.

Due dates of paying advance tax:

For individual and corporate taxpayers [other than assessee covered u/s 44AD(1) or u/s 44ADA(1)] –

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

For taxpayers who has opted for presumptive taxation scheme – business income [S. 44AD(1) or S. 44ADA(1)]–

By 31st March - 100% of advance tax

Finally, the advance tax is paid using Challan 280.