Your guide to advance tax

Paying taxes is a game that is going to catch up with you all the year round. So if you have just filed your income tax returns (ITR) for last year, it’s time to swing in action to pay advance tax depending on what time of the year you are in. Who pays advance tax ? When is it paid and what is it ? As the name suggests, advance tax is nothing but tax paid in advance by the assesse. According to the Income Tax Act, all assesses who earn income in any financial year will need to pay it.

Who needs to pay advance tax ?

• If your tax liability for  financial/previous year 2009-2010 is Rs 10,000/- or more, you must pay advance tax.
• This tax is paid on any income, irrespective of whether you earn from business or are a salaried individual.
• Your income from salary, business, capital gains, house property, interest earned etc are all liable as well.

How is it calculated ?

It is calculated in the same way as the final tax liability is computed at the year end. The major difference is that advance tax is computed at the beginning of the previous year on income that an individual might earn during the year; in that sense it is estimated income. The tax is calculated using the rates applicable for the financial year.

Suppose after paying your first installment of tax on the estimated income, you actual income increased due to some shares that you sold. You will need to revise your income and accordingly pay the differential in the next installment.

Advance tax dates and tax payable

If you are an individual assessee, then the first installment up-to 30% is to be paid by 15th September. The next installment up-to 60% will need to be paid by 15th December and the last one by 15th March, which will be up-to 100% of advance tax. Below are the dates and percentages when the tax is to be paid :

To take an example, suppose your total tax liability for this year is Rs 1,00,000/-.

So by 15th September you will need to pay 30% which comes to Rs 30,000/-.

By 15th December you will have to cover 60%, so you will need to pay another Rs 30,000/-.

By 15th March, 100% of advance tax comes to Rs 100,000/- but since you have already paid Rs 60,000/-, you will need to dish out another Rs 40,000/-.

Advance tax and salaried individuals

• However salaried individuals do not need to worry as the employer deducts tax at source for the income that the individual will earn.
• If you have income  from interest, house property and the like, you will need to request your employer to deduct more tax. If employers do not do this for you, in that case you will have to separately file returns yourself.

Other points to note

• If you do not pay your tax in first installment, then there is a fine of 1% per month till the time you pay the next installment.
• Most of the major banks accept advance tax payments. Keep the receipt safely with you.
• If you have paid excess and are seeking a refund, the government will pay 0.5% interest for every month.

Someone rightly said that death and tax cannot be avoided, so use this facility provided by the IT department to pay your taxes in time.