Advance Income Tax in India

Written by: Rohini Singh, India Briefing, Dezan Shira & Associates

Posted: 9th December 2019 08:44

Any person in India, whose estimated tax liability is more than Rs 10,000 (US$145) in a financial year, after deducting TDS, must pay income tax in advance.

Normally, for tax liability less than Rs 10,000 (US$145), the income tax for a financial year is paid in the assessment year (AY).

Under the advance tax method, tax liability is distributed in installments within the same financial year. Therefore, an ‘estimated tax’ must be paid in installments throughout the same financial year.

In simple terms, it is a ‘pay as you earn’ tax.

For example, for FY 2018-19 and FY 2019-20, the due dates for advance tax (for both individuals and corporates) are:

For taxpayers showing business income and opting for the Presumptive Taxation Scheme (Section 44AD and 44ADA, Income-tax Act, 1961), it is:

If the total tax paid exceeds the actual tax liability – computed when filing the final tax returns at the end of the year – the excess amount is refundable.

The advanced income tax is calculated in the same manner as normal income tax and the same tax slabs apply to respective taxpayers. However, the method of filing advance income tax is different.

Who pays advance income tax in India?

Advance income tax applies to all taxpayers, whether salaried, freelancers, or businesses.

Senior citizens (60 years or older) who do not run a business are exempt from paying advance tax and may file returns normally at the end of the year.

Businesses opting for the Presumptive Taxation Scheme are, however, exempt from paying advance tax in installments; instead, one advance tax payment is made on or before March 15.

Professionals under the presumptive tax scheme must pay advance tax in installments.

Penalties

The penalty for not paying advance tax is explained under Section 234B of the Income-tax Act. Interest of one percent per month is paid on the estimated installment value, or shortage in payment, if advance tax is not paid as per the schedule.

Further, an interest of one percent is payable if 90 percent of the tax is not paid before the end of the financial year.
A penalty is also applied, if during the normal tax filing process at the end of the financial year, advance tax is not paid when the liability is greater than Rs 10,000 (US$145). 

The penalty is levied from April 1 of the relevant financial year till the date of determination of income under Section 143(1) or date of regular assessment.

It must be clarified that penalty will not be levied if there is an increase in the taxpayer’s tax liability due to capital gains, income from lotteries or a new business, or dividends income referred to in Section 115BBDA of the Income-tax Act. The taxpayer would then be expected to pay the advance tax in the subsequent installment or in case there is no installment pending, then by March 31.

Steps to file your advance tax

This article was originally published on August 1, 2018 and has been updated on November 22, 2019.

This article was first published by India Briefing, which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in ChinaHong KongVietnam, Singapore, India, and Russia. Readers may write info@dezshira.com for more support.  


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