Advance Tax Calculation for Financial Year 2018-19

What is Advance Tax?

In the simplest form, Advance Tax refers to paying a portion of your yearly taxes in advance to the respective authorities. If your tax liability rises to more than INR 10000 in one financial year, you need to pay a part of your total taxes in advance.  Advance Taxes are also referred to as ‘’pay as you earn’’ scheme, because these taxes are paid in the same year when the income is received.

Advance Taxes are applicable when a person has some unearned income, that is, income received without providing any service. For example, lottery winning, income received from betting, capital gains, rented property etc. A person who has no income of this sort is not liable to pay any advance taxes.

It is mandatory for every individual to pay his or her advance taxes on time; otherwise there is a penalty of one percent every month, which accounts to 12 percent a year. Thus, to avoid such huge penalties make sure your dues are all cleared!  Section 234B and Section 234C deals with the advance taxes. Under section 234B interest in charged on the amount of outstanding advance tax. If in case, you are unable to pay the entire amount of advance tax, the interest is charged on the amount that is unpaid.

For whom is the advance tax payment applicable?

  • Consider the concept of Tax Deducted at Source (TDS).  When you receive your income, your boss deducts the TDS.  If in case, this TDS deducted happens to be higher than the tax due, you need not pay any advance tax.
  • Salaried Employees: If you are a salaried person, the TDS is subtracted from the salary by your employer, and again, you are free from paying any advance tax.
  • Freelancers: In most of the cases, the TDS deducted while paying the freelancer is not enough. Thus, freelancers are usually subject to paying advance taxes.
  • Senior citizens who are aged above 60 years are exempted from paying any sort of advance taxes, provided they are not engaged in any business.

When is the advance tax to be filed?

There are pre-decided dates by the authorities as to when the self-assessment taxes are to be paid.

15th of September, 15th of December and 15th of March are the particular days for the same. The taxes are not to be paid in lump-sum but rather in installments of 30 percent, 30 percent and 40 percent respectively, for the non-corporate.

Corporate have to pay the taxes on 15th of June, 15th of September, 15th of December and 15th of March.

In India, there are 926 branches in total which accept advance tax payments.  You can pay your taxes via the tax payment challan at the branches associated with the Income Tax Department.  Reserve Bank of India, ICICI, State Bank of India, HDFC Bank, Indian Bank is some of the authorized banks.

The tax payment can also be done online with the help of National Securities Depository Site.

Whichever mode of payment you choose, make sure you do it under full alertness and confidence. Any doubts should be cleared beforehand because even a single mistake made on your part disrupts the entire system.

Advance Tax Calculation

You can calculate your advance tax by following the below mentioned steps with full accuracy. If at any stage, you face any confusion or a doubt, there are many online help services that you can take benefit of. You can also get in contact with any skilled agent and explain him or her your queries in detail.

Just follow the procedure mentioned below and pay your advance tax on time!

Step 1:

Estimate your income tax liability

The first step in advance tax calculation is estimating the income tax liability. This can be simply done with the help of income tax calculators and filing apt Income Tax Rate forms. In case of any complexity you can use the expert services.

You need to continue to the second step only if your income tax liability is more than INR 10000.

Step 2: Divide the tax Liability

Split your liability as per the installments that you need to pay on the specified dates.

Note that, you need to pay zero amount in the first second and third installment under section 44AD or 44ADA. The entire 100 percent of the advance tax is payable at the last installment, that is, up to 15th of march, 2019.

All the other Assesses need to pay up to 15 percent, 45 percent, 75 percent and 100 percent of the advance tax at the beginning of the first, second, third and fourth installment respectively.

If in any case, you fail to pay the tax, it will charge interest under section 234C.

Interest under section 234B will be charged if a person fails to pay any installment.

Step 3: The mode of tax payment

Advance Tax Calculation requires you to pay the advance taxes in a proper systematic mode descried below.

  • The corporate assesses must pay the advance tax via electronic mode. This is a mandatory requirement for them, which cannot be ignored no matter what!
  • Any assesse who is who are liable for the Tax Audit also need to pay the same via the electronic mode.
  • The payment can be made through a Challan no.280 as well, by any other assesse.

Step 4: Verification of the status of the advance tax paid

An individual can very easily check the status of the tax deposited through the below mentioned means.

  1. NSDL e-Governance: A person can make a Challan Status Inquiry if need be. This is done with the help of OLTS Application.
  2. Form Number 26 AS: The TDS gets reflected in form number 26AS within a week of making the payment. Thus, you can confirm the same from there itself without getting into any other details.

In case you have a bank holiday, you need to pay the tax the next immediate working day without any fail.

Just follow these four simple steps, and you are done with the task of advance tax calculation as well as the payment.

To make things clearer, consider an example.

Consider, Mr. Bajaj, a business man in XYZ corporation. He is not paying his taxes under section 44AD and 44ADA. His estimated income tax liability accounts to INR 100000 for the financial year 2018-19.

His advance tax calculation and payment shows the following results.

Advance Tax liability amounts to INR 15000, INR 45000, INR 75000 and INR 100000, as on 15th June 2018, 15th September 2018, 15th December 2018 and 15th March 2019 respectively.

The advance tax already paid up to the first installment is zero, followed by INR 15000, INR 45000 and INR 75000.

Finally, the advance tax payable up to the first installment is INR 15000, up to the second installment is INR 30000, up to the third installment is INR 30000, and up to the last installment is INR 25000.

Online Payment of advance tax

You can very well pay the tax online using the online service offered by the Income Tax Department to the residents of the country. Understand the entire method completely and then make the payment while sitting at your home or office.

First, visit the Government official website. You will see the option of right challan. Select it for the payment of the advance tax. Next, you need to fill the form. Make sure you enter all your details correctly to avoid a mess. Details in the from include address, phone number, right assessment year, captcha code, bank name and much more. Fill them carefully. You will be automatically redirected to the net banking page, once you fill up the entire form. Just recheck the income that you are to be paid at this page. You will mechanically get the details for your payment that includes the challan number.

Note that it is important to report the payment after doing it. Just add an entry under the paid tax page and you are done!

Paying the tax online is easy as compared to paying it offline. You do not have to visit very many government offices for the same and wait for your turn to come up or any other problem. But it requires complete information of the procedure. Make sure you are thorough with that.

Statutory Provisions for the payment of advance tax in India

As per the Income Tax Act, 1961; there are some specific sections that deal with the advance tax. While engaging in advance tax calculation it is very important to have knowledge regarding these sections.

  • Section 208: Under this section, conditions of liability to pay the advance tax are mentioned.
  • Section 209: This section deals with the computation of the advance tax. The entire information is available under this section and is to be followed exactly while advance tax calculation. Any discrepancies will cost a lot, not only to the individual paying the tax, but also to the entire economy.
  • Section 210: Paying the tax by the concerned person of his or her own accord.
  • Section 211: This section deals with the due dates.

Refund of the advance tax

At the end of the year, if the Tax Department notices that the amount of tax paid by you is higher than the actual amount you need to pay, you will be refunded with the extra amount. All you need to do is fill and submit Form 30.

Penalty for late payment of advance tax

Section 234B and Section 234C deals with the penalty for the late payment of the advance tax by the tax payer.

Penalty under the section 234B for not paying the tax on time applies if the tax payer fails to pay the advance tax he is liable for or he paid less than 90 percent of the total amount to be paid by him.  He must pay an interest of 1 percent per month for the same. The interest is charged on the amount unpaid.

The Penal interest under Section 234C is levied only if

  • Advance Tax paid on or before 15th June is less than 12 percent of the tax payable.
  • Advance Tax paid on or before 15th September is less than 36 percent of the tax payable.
  • Advance Tax paid on or before 15th December is less than 75 percent of the tax payable.
  • Advance Tax paid on or before 15th March is less than 100 percent of the tax payable.

It is advisable to avoid facing these penalties as much as possible, as it turns out to be just a loss of time and money. Be careful while dealing with the installment dates and try to clear all your dues on time. You can appoint someone professional to handle all this for you, if need be.

Why is paying advance tax important?

Receiving income in advance is such a joy, but paying your expenses in advance is a big relief, isn’t it? When you pay your tax payments well in advance you feel burden-less.

It is not just about breaking the stress factor but thinking in terms of economics and the growth sector, payment of taxes beforehand gives government a sense of security. If they know, that the citizens of the country will pay he taxes in an honest manner and at a point of time, they will be able to formulate their policies well in advance. This will help in a more effective and quick way of implementation and increase the growth of Gross Domestic Product. Following this, the level of employment in the country will boost up and many more positive changes will come.

Thus, it is cycle that starts with the payment of the advance taxes and ends with the economy growing rapidly.

It is the responsibility of every individual of the country to pay the taxes in an honest manner. Not doing so, will hamper the growth!