What are the provisions of advance tax in India

Written by : Knowledge Centre Team

2024-08-02

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What are the provisions of advance tax in India?

In India, advance tax refers to the activity of paying a portion of your taxes before the financial year ends. According to Section 208 of the Income Tax 1961, every individual whose estimated income tax liability for a given financial year is Rs 10,000 or more should pay his or her tax in advance, hence the term ‘advance tax ‘pay-as-you-earn’ scheme. The payment of the advance tax must be made in the financial year in which the taxpayer receives the income.

The primary benefit of paying advance tax is that you do not have to pay the whole tax at one go, once the financial year ends. The payment of advance tax is to be made in four installments within the stipulated due dates of advance tax payment.

Accordingly, taxpayers are expected to pay at least 15% of their income tax liability on or before 15th June, 45% by 15th September, not less than 75% by 15th December, and the total tax liability calculated by 15th March of each financial year. Depending upon the changing income estimates, the advance tax payable may reduce or increase as the installments progress.

Payment of Advance Tax for Self-Employed and Business Owners

Due Date	Amount payable
Before September 15	>= 30% of total advance tax liability
Before December 15	>= 60% of total advance tax liability
Before 15th March	100% of total advance tax liability

Payment of Advance Tax for Organisations

Due Date	Amount payable
Before 15th June	>=15% of total advance tax liability
Before September 15	>=45% of total advance tax liability
Before December 15	>=75% of total advance tax liability
Before 15th March	100% of total advance tax liability

Payment of Advance Tax for Salaried

In the case of salaried individuals, there is no need for them to pay advance tax, as it is their employer’s responsibility to deduct tax at source (or TDS). Payment of advance tax is applicable in cases wherein an individual has other sources of income, apart from a fixed salary. Thus, incomes earned from sources such as capital gains on shares, lottery winnings, interest on fixed deposits, capital gains on house property, or salaried income are subject to advance tax payment after adjusting for any expenses or losses.

You must consider here that while your employer may deduct TDS on your salary, the advance tax is paid on income which is not subject to TDS.

How to File Advance Tax?

To pay advance tax, individual taxpayers may use tax payment challans at any of the authorized bank branches or pay online through the National Securities Depository or the Income Tax department. Alternatively, taxpayers can also pay advance tax with the Reserve Bank of India

In case you miss the deadline or pay less than the mandatory percentage of the advance tax, you would have to pay an additional amount as interest. This interst amount is calculated at 1% per month simple interest (for three months) on the defaulted amount. Moreover, the same interest penalty would be applicable if you miss out on the second consecutive deadline. In case you continue to miss out on the payment of advance tax on or before the final deadline (i.e., 15th March), you would have to pay 1% simple interest for every month until you fully pay the tax.

If you end up paying a higher advance tax, you wwould be eligible to receive a refund of the excess amount along with an interest amount calculated at 6% per annum (if the excess amount is more than 10% of the total tax liability.)

FAQ

Income tax in India is based on incremental slab rates. The rate of tax is higher on higher income. You can also avail deductions from your taxable income if you invest in eligible instruments like PPF, NPS, ELSS, ULIPs, etc. Starting AY 2020-21 you have two tax regimes – old and new. The old tax regime has all the deductions from gross total income, while the new tax regime offers a lower rate of tax. So, if you are not investing in tax-saving instruments you can file your tax as per the new tax regime.

You can avail additional tax savings under the following sections other than section 80C:

a) Section 80D: Health insurance premium payments for family and parents up to Rs 75,000
b) Section 80CCD(1B): Self-contribution to NPS Tier-I account above 10% of salary or 20% of income if self-employed up to Rs 50,000
c) Section 80E: Education loan interest paid through the year
d) Section 80EE: Home loan interest paid up to Rs 50,000
e) Section 80G: Charitable contributions to non-profit organisations registered under section 12A up to 50% or 100% of the contribution
f) Section 24B: Interest paid on home loan

You have many tax-saving investment options. You can consider the following popular tax-saving schemes to save tax:

a) Term life insurance plan
b) Health and critical illness insurance plan
c) Life insurance plans such as endowment and moneyback plans
d) Pension plans from life insurance companies
e) Public Provident Fund (PPF)
f) National Pension System Tier-I account (NPS)
g) Employee Provident Fund (EPF)
h) Unit Linked Insurance Plans (ULIPs)
i) Equity Linked Savings Scheme (ELSS)
j) Senior Citizen Savings Scheme
k) Sukanya Samriddhi Yojana
l) 5-Year Tax Saving Fixed Deposits
m) National Savings Certificate (NSC)

Deduction of Rs 1.5 or 2 Lakhs under section 80C is available when you make investments or spend money under the heads mentioned in the Chapter VI A of the Income Tax Act, 1961. All tax-saving investments like PPF, NPS, ULIP, ELSS, etc. and all tax-saving expenses like children’s tuition fees, and registration expenses of a house property are part of Chapter VI A.

You will need to pay taxes on the incomes and gains from your investments. For example, your salary income is Rs 10 lakhs in a year, out of which Rs 7.5 lakhs becomes taxable after deducting exempt perquisites. Out of your income of Rs 10 lakhs, you invest Rs 3 lakhs in various options.

Even if none of your investments is eligible for tax saving under section 80C, your taxable income will remain Rs 7.5 lakhs. However, returns from some of these investments will become taxable in the next financial year when you receive them.

Since AY 2020-21 you have two ways to lower your income tax outflow on higher income – tax-saving investments and a new tax regime. You can stick to the old tax regime and invest your savings into eligible tax saving options. Tax-saving investments can give you a deduction of up to Rs 2 lakhs under sections 80C and 80CCD(1B), and additional deductions of up to Rs 2 lakhs under section 24.

Your deductions will be higher with other sections like 80E and 80G. But these are specific outflows which are not investments.

The best way to reduce your tax outflow legally is to use tax-saving investments and plan your future taxes carefully. Tax-saving investments will help you reduce your taxable income in the present financial year. If you invest in options which enjoy tax exemptions on maturity values, you can also reduce your future tax outflow. For example, Invest 4G ULIP from Canara HSBC Life Insurance allows you to stay invested up to the age of 99. This means that you can start investing at 30, build a corpus by 60 and have a tax-free lifetime pension.

Usually, a receipt is a convenient document to produce while claiming your deductions for expenses. However, the following alternatives are available if you lose the receipt:

a) Avail fuel or petrol expenses with number of kilometres
b) Credit card statement for computer items
c) Credit/debit card statement for stationery items
d) Membership documents to show running membership to claim the fees amount

You can claim HRA exemption with your employer and declare the amount in your ITR-1 form while filing your tax return. You will need to submit your house rent receipts with your employer to reduce your TDS. Use the online calculator to estimate your HRA exemption and claim the amount directly in your ITR.

If you are self-employed or do not receive HRA from your employer but have been paying rent for residence, you can claim a deduction of up to Rs 60,000 under section 80GG.

You can calculate your HRA exemption based on the following conditions. The amount of exempt HRA will be the lowest of the three:

a) HRA you have received
b) 50% of salary (basic + DA + Commission paid as % of turnover) if you are staying in a metro city otherwise 40%
c) Rent paid over 10% of your salary (as defined in step 2)

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