The principle we follow in India for taxes is ?pay as you earn?. For an individual, while taxes on salary income are withheld at source (TDS, or tax deducted at source) and deposited by the employer, taxes on other income like house property, business and profession, capital gains and other sources have to be paid in advance in instalments. As the first instalment of advance tax is due for payment on September 15, let us take you through the provisions related to advance tax.

Who has to pay

The Income Tax Act, 1961, makes it mandatory for every person liable to pay tax in India to pay income tax in advance if estimated tax liability (after considering the TDS, if any), on projected income is likely to be R10,000 or more during the relevant financial year (FY). Alternatively, a salaried employee can also declare his other income to the employer and pay off the taxes through the TDS mechanism.

When to pay

Payment of advance tax depends on the status of the taxpayer. In case of individuals, up to 30% of the estimated tax liability is payable on or before September 15 of the financial year, up to 60% is payable on or before December 15 of the financial year and up to 100% is payable on or before March 15 of the financial year. Any payment of tax made before March 31 will be treated as advance tax paid during the financial year.

How to pay

For calculating the advance tax, the first step is to estimate the total income likely to be received/ earned from various sources during the FY. The next would be to compute the taxes payable on the estimated income. While estimating the tax liability, one has to ensure that the likely TDS on various sources of income is reduced. This estimated tax needs to be paid as per the prescribed percentage in instalments as mentioned above.

After paying the first instalment of advance tax, an individual can revisit the estimate of income and accordingly pay advance tax on such revised income in the remaining instalments.

Missed deadline

If an individual defaults or delays paying an advance tax instalment or fails to deposit the exact percentage of advance tax before the specified due dates, penal interest of 1% every month is payable. Keeping the above in mind, it would be prudent to pay taxes in advance and save interest cost and also avoid last-minute hassles.

Writer is executive director (tax) KPMG; with inputs from Neetika Khosla