The holiday season is around the corner and so is the due date for payment of the second instalment of advance tax.
Are you wondering what advance taxes are, why the due dates are almost as important as July 31 and what this means for you? Let’s find out.
What: Every individual taxpayer is required to pay advance tax if taxes on their personal income, such as income from house property, capital gains and income from other sources (other than income on which tax has been deducted at source (TDS) by the payer) is R10,000 or more.
When: For the sake of convenience, advance tax can be paid in three instalments.
Why: If taxes are not paid within the prescribed timelines, or advance tax paid is less than 90% of total tax payable, it would lead to additional outflows for the taxpayer. Interest at the rate of 1% per month, or for part of a month, would be payable from September 2014 to March 2015 on the amount of taxes not paid.
Additionally, interest at the rate of 1% per month, or for part of a month from April 2015 until the date of payment of taxes, would also be payable. The income tax return cannot be filed till the said taxes, along with interest, are paid.
In case of income from capital gains, even if one fails to estimate such income while paying advance tax, interest implications may not arise for any instalment prior to earning this income. However, this benefit comes with the tag of ‘conditions apply’ and, therefore, further analysis is required.
How: The taxpayer has to estimate the total income he would be earning during the entire financial year, and pay taxes on it.
Taxes can be paid online or at various authorised banks using a tax payment challan for advance tax.
What next? First, take stock of all your income earned so far and estimate the possible inflow until 31 March 2015.
Second, calculate taxes on the estimated income based on the existing tax rates for financial year 2014-15.
Third, reduce the TDS already deducted by the payer, along with the estimated TDS to be deducted until March 31, 2015.
Last, the second instalment of 30% of taxes has to be paid to the revenue authorities on or before December 15, 2014. In case the first instalment, due on September 15, 2014 has not been paid, 60% of the taxes would have to be paid by December 15, 2014. Since advance tax payments are spread throughout the year, the taxpayer can plan his finances so that there are no surprises at the year end.
The taxpayer is also saved from the burden of making a lump sum payment at the time of filing the return. If you have not yet paid advance tax for this quarter, do it right away.
It is only a click away.
By Rama Karmakar
The writer is senior tax professional, EY. Views expressed are personal