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What is advance tax?

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THE due date for first instalment of advance tax for individuals for financial year 2013-14 is September 15. With due date just around the corner, it would be a good idea to take stock of your incomes and pay taxes on time.


What is advance tax? The concept of advance tax is outlined in Section 208 of the Income-Tax Act, 1961 (`I-T Act'). Advance tax is a mechanism to pay an individual's annual tax liability in instalments before the specified dates. It is tax paid in advance based on the estimated income likely to be earned in a year.


When does the liability to pay advance tax arise? Individuals can have income from multiple sources. In some cases, all taxes would have been deducted and in some partial. The liability to pay advance tax arises when there is a balance tax liability of Rs 10,000, which needs to be still deposited.


Due dates for payment for the current FY14: Advance tax has to be paid in three instalments for an individual by the following due dates: September 15: Instalment amount to be paid will be 30 per cent of advance tax due.

December 15: Instalment amount to be paid will be 60 per cent of advance tax due.

March 15: Instalment amount to be paid will be 100 per cent of advance tax due.


Mechanism of payment of advance tax: Advance tax can be paid by using tax payment challan (Challan no ITNS 280) and submit ting it with any bank listed with the income-tax de partment. Online payment can also be made through the income-tax depart ment or National Securi ties Depository Limited's website. At the time of pay ment, it should be ensured that the challan has been filled with accurate details of the taxpayer.


Advance tax not applicable in some cases: Advance tax provisions are not applicable for senior citizens having income other than income from business or profession or if the tax payable is up to Rs 10,000.

Penalty for non-payment of advance tax: The I-T Act has specific penal provi sions for non-payment of advance tax instalments.

If during the year an advance tax instalment has not been paid or has been paid for a lower percentage than prescribed, an inter est of 1 per cent per month will be required to be paid under Section 234C of the IT Act. Also, if advance tax paid is less than 90 per cent during the year then an additional interest of 1 per cent per month is payable under Section 234B of the act for the period beginning April 1, 2014, till the date of deposit.


Relaxation in some cases: Ascertaining salary income, interest income and rental income is possible.


However, it may be difficult to estimate income from lotteries, game shows and sale of assets. The I-T Act has special relaxations for such cases. No interest shall be charged for delayed payment of advance tax on such income provided tax is correctly paid in the subsequent instalments when the amount has been estimated properly.


To sum up: It is always prudent to start ascertaining your sources of income and tax liability for the current financial year and deposit advance taxes, if any.


It is certainly advisable to discharge advance tax within the due date rather than pay interest later on.


After all every penny saved is a penny earned.

Happy Investing!!

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