Advance Tax Payment: When, Why And How To Pay

In India and elsewhere, advance tax ensures taxpayers meet their tax obligations in a timely and phased manner.

This approach not only aids in the government’s fiscal management but also allows taxpayers to distribute their tax payments, thereby avoiding a lump-sum payment at the fiscal year’s end.

This article dives deep into the nuances of advance tax, covering its definition, importance, due dates for payment, how to pay and the implications of non-compliance.

What is Advance Tax?

Advance tax, as mandated by the Income Tax Act of India, requires taxpayers to pay their income tax in instalments throughout the financial year, based on their projected income.

This system applies to all taxpayers whose tax liability, after TDS, exceeds ₹10,000. The essence of advance tax lies in its “pay-as-you-earn” approach, facilitating a smoother financial planning and management process for both individuals and businesses alike.

Why Should You Pay Advance Tax?

The rationale behind advance tax payments extends beyond mere compliance with tax laws. It embodies the principle of financial prudence, enabling taxpayers to manage their tax liabilities efficiently across the year.

This phased payment system helps in avoiding the financial strain that could arise from a single, substantial tax payment. Further, adherence to advance tax payment schedules ensures that taxpayers avoid accruing interest and penalties, reinforcing the importance of timely and accurate tax payments.

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What Are the Advance Tax Due Dates?

The Income Tax Department has laid out specific dates for the payment of advance tax, which are critical for taxpayers to observe to ensure compliance and avoid penalties. These are:

  • 15th June: By this date, 15% of the advance tax liability should be paid.
  • 15th September: 45% of the tax liability, cumulative for the year, should be cleared by now.
  • 15th December: 75% of the cumulative tax liability for the year must be paid.
  • 15th March: The remaining tax liability, rounding up to 100%, should be settled by this final instalment date.

These dates are strategically spaced throughout the financial year to align with the income patterns of taxpayers, thus facilitating easier financial planning and management.

How to Pay Advance Tax?

Paying advance tax is straightforward, thanks to the online facilities provided by the Income Tax Department of India. Here's how you can do it:

  1. Visit the Income Tax e-Filing website and log in to your account.
  2. Select the e-Pay Tax option under the ‘Taxes’ tab.
  3. Choose the correct challan (ITNS 280) for advance tax payment.
  4. Fill in the required details, including the assessment year, address, and the type of payment (advance tax).
  5. Make the payment using your preferred online banking method.
  6. After the payment is processed, you will receive a challan containing the CIN (Challan Identification Number), which serves as proof of payment.

What Will Happen If You Don't Pay Advance Tax?

Failure to pay advance tax or delay in payments can result in interest penalties under Sections 234B and 234C of the Income Tax Act.

If advance tax is not paid according to the specified percentages by the due dates, interest is charged at 1% per month or part of the month on the defaulted amount.

It’s crucial to assess your tax liability accurately and make timely payments to avoid these penalties.

Advance tax plays a crucial role in India’s tax structure, designed to facilitate a balanced and systematic approach to tax payment.

By adhering to the specified payment schedule and understanding the fundamental aspects of advance tax, taxpayers can navigate their fiscal responsibilities more effectively, ensuring compliance and financial stability.

The “pay-as-you-earn” model not only benefits the individual taxpayer by spreading out tax liabilities but also aids in the country’s economic management by ensuring a steady inflow of tax revenues throughout the year.

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Posted In: GovernmentRegulationsincome tax