Advance Tax in India: Key Rules and Compliance

Understanding Advance Tax in India

Advance Tax refers to the income tax that is paid in advance instead of a lump sum at the end of the financial year. Taxpayers pay advance tax in India on estimated taxable income as they earn. The payments are made quarterly in four installments as per the due dates prescribed under the Income Tax Act, 1961.

Who Should Pay Advance Tax under Section 208 Income Tax Act

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.

How to Calculate Advance Tax in India

The computation of advance tax in India starts with estimating annual income. Individuals, companies, and firms assess projected earnings and calculate the tax liability based on prevailing income tax rates. Proper advance tax calculation ensures timely compliance and avoids penalties.

Advance Tax Due Dates and Payment Percentages

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

Consequences of Non-Compliance Advance Tax

As per Section 234B, where the advance tax in India 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 the 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 a specified time. Interest under section 234C of the Act is levied for a period of 1 month in case of a shortfall in payment of the last installment and for a period of 3 months in case of a shortfall in payment of the 1st, 2nd, and 3rd installments.

MBG Advance Tax Assistance and Support

MBG can provide professional tax support in the following ways:

• Assist in advance tax calculation on a quarterly basis.
• Ensure timely payment of advance tax in India as per specified advance tax due dates.