Importance of Paying Advance Tax

Receiving income in advance is such a joy, but paying expenses in advance is a relief. Don’t you agree? Similarly, paying advance tax relieves you from incurring further expenses in the form of interest on the late payment of advance tax.

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How important is paying Advance Tax?

1. What is advance tax?

Advance tax is the tax paid in advance for the income of a particular financial year. You might be under the impression that tax has to be paid only once when you earn it. But this is not true. The Income Tax Department requires advance tax to be paid based on the estimated income for the entire year. Also, advance tax is paid at specific time intervals throughout the financial year.

Quick notes:

1)    Advance tax is payable if your tax liability exceeds Rs 10,000 in a financial year.

2)    It should be paid in the year in which the income is received.

3)    It is payable on income not subject to TDS.

4)    It is known as 'pay-as-you-earn' scheme.

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2. Advance Tax Means

Calculating advance tax may seem a tedious job. Contrastingly, it is a boon. Paying advance tax is important and beneficial in the following ways:

1. Funding the government for development projects from time to time.
2. For you, it means breaking up tax payment into installments and avoiding last minute arrangement of a lump sum amount.
3. Punctuality in payment of advance tax avoids penalties prescribed by provisions of Income Tax.
4. Advance tax paid by a company is an important measure to analyze its performance. An increase in advance tax paid by a company compared to that of a previous year is a sign of profitability.

3. When to pay advance tax?

The dates for paying advance tax are given by the Income Tax Department as follows:

1)    Individuals, corporate taxpayers, and taxpayers who have opted for presumptive taxation:

2)    For tax payers having business income:

4. Penalties attracted for non-payment of advance tax

Failure or partial payment of advance tax attracts stiff penalties as follows:

• An interest of 1% per month on the shortfall until the next installment.
• If total advance tax paid (including TDS) is less than 90% of the tax liability at the end of the fiscal year, an interest of 1% per month is payable.

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5. Excess advance tax paid

If the advance tax paid by you is higher than the total tax liability, you will receive the excess amount as a refund. Also, interest @ 6% per annum will be paid by the Income Tax department on the excess amount if it is more than 10% of tax liability.

6. Who should pay advance tax?

You need to pay advance tax if:

1)    You earn income other than salary. This is because your employer deducts tax at source (TDS) for salary.

2)    You earn income not subject to TDS.

So, advance taxes are payable on income from house properties, capital gains, etc.

7. Senior citizen advance tax exemption

A senior citizen aged 60 years or more who is a resident Indian and does not run a business is exempt from paying advance tax. Be Wise, Get Rich.