Insights

Direct Tax Advisory

Alert on Advance Income Tax

June 08, 2024
  1. What is advance tax?

Advance tax is the income tax that is paid in advance instead of lump sum payment at year-end. It is the tax that you pay as you earn on estimated taxable income. Advance tax needs to be paid quarterly in four installments as per due dates as prescribed in the Income Tax Act,1961 (The Act).

  1. Who should pay advance tax?

As per Section 208 of the Act, advance tax is payable during a financial year where the amount of tax payable is INR 10,000 or more.

Provided that advance tax shall not apply to an individual resident in India if the following conditions are satisfied:

  • The resident individual does not have any income chargeable under the head Profit and gain of business or profession; and
  • The resident individual is of the age of 60 years or more at any time during the previous year.
  1. How to calculate advance tax?

The computation of advance tax begins with an estimation of the taxpayer's annual income. Individuals, companies, and firms assess their projected earnings and calculate the corresponding tax liability based on the prevailing income tax rates.

  1. Advance tax due dates and payment percentage:

Advance tax is to be paid in different installments. The due dates for payment of different installments of advance tax are as follows:

Due Date Advance Tax Payment Percentage
On or before 15th June 15% of advance tax
On or before 15th September 45% of advance tax (-) Already Deposited
On or before 15th December 75% of advance tax (-) already deposited
On or before 15th March 100% of advance tax (-) already deposited
  1. Consequences of non compliance:

As per Section 234B, where the advance tax paid by the taxpayer is less than ninety percent of the assessed tax, the taxpayer shall be liable to pay simple interest at the rate of one percent for every month or part of a month on the amount deposited less than ninety percent. Interest under section 234B of the Act is levied from the first day of the assessment year till the date of determination of income under section 143(1) or when a regular assessment is made.

Section 234C highlights levy of interest at the rate of one percent for every month or part of a month on account of default in payment of installments of advance tax at specified rates and for specified time. Interest under section 234C of the Act is levied for a period of 1 month, in case of shortfall in payment of the last installment and for a period of 3 months, in case of shortfall in payment of 1st, 2nd and 3rd installments.

  1. MBG can assist in this scenario in following ways:

Provide assistance to calculate the advance tax liabilities on quarterly basis.

Provide assistance for timely deposition of advance tax on the specified due dates.


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