Advance tax is the income tax required to be paid in advance on estimated income of a tax year. The onus of estimating the taxable income and discharging the due tax liability on such income in advance, is on an individual tax payer.
Advance tax provisions are applicable if the tax liability to be discharged by a tax payer after reducing tax deducted at source (TDS) from his total tax liability is more than R10,000.
There is a relief available to the resident individuals who are over 60 years of age and do not have income chargeable under the head ‘Profits and Gains of Business or Profession’, for not paying any advance tax.
Individuals have to estimate their income for the full financial year as early as June 15, as compared to the previous first instalment date of September 15.
This change brought by Union Budget 2016 has been seen as an accelerated revenue collection measure for the government. There will be another compliance date to remember and missing it will lead to interest implications.
The payment of advance tax can be done by using the tax payment challans (ITNS 280) at the designated bank branches or through the online portal of the income tax department.
If advance tax is not paid or the amount of advance tax paid is less than 90% of the final tax liability, the tax payer shall be liable to pay simple interest @1% per month from first day of assessment year (year following the tax year) up to date of deposit of tax & interest.
For example, if balance tax for the tax year 2016-17 is paid in the month of July 2017 then, the interest would be required to be paid for four months (April 2017 to July 2017).
If the payment of advance tax is deferred beyond the due dates, interest @1% per month, for a period of three months, will be payable for every deferment, except for the last instalment of March 15 where it will be 1% for one month.
So, it is really beneficial for an individual tax payer to estimate the income to be earned and the taxes payable at the beginning of the tax year.
It is advisable to pay the advance tax on time so as to avoid the last minute outflow of funds at one go.
Else, you may end up paying absolutely avoidable penal interest for such delay.
One should estimate the total income at the start of the tax year by keeping the last year’s income as a benchmark, e.g. salary, capital gains, interest on savings bank account and term deposits. This exercise would need to be done before every instalment date so as to factor in any changes.
The writer is partner & India
Mobility Leader, EY. Inputs from
Shanmuga Prasad, senior manager, EY