Often one blissfully waits till July subsequent to the end of the financial year to consolidate ones incomes; however, what goes amiss is that tax payment is a ritual which should be visited through the year and not merely during tax filing.

This is where 'advance tax' phenomenon comes into picture. As the name suggests, advance tax is nothing but tax paid in advance during the financial year.

Applicability

Any income that has not undergone tax deduction at source is liable for taxes under advance tax. Advance tax normally arises when there is income through capital gains, interest earned, winnings from lotteries, income from house property or income from business.

It is payable irrespective of whether one is a business person, consultant or a salaried individual.

If the tax payable is Rs 5,000 or more, then it is obligatory to pay advance tax. For an individual with only salary income, there is no cause of worry, since the employer will conduct tax deduction at source.

However, if a salaried person has additional income from any other source (eg. interest from deposits, rental income, capital Gains, etc) and crosses the above limit, one needs to pay advance tax. 

Advance tax is also payable if the person has worked in two different companies during the financial year.

Advance Tax Dates & Tax Payable

For individual assesses, advance tax is payable in installments, before the below mentioned dates:

For a corporate, there are 4 installments applicable. Apart from the above there is 15 per cent tax payable by 15 Jun of every financial year.

Assessment of Tax Payable & Payment

Although it is a herculean task to estimate your income (what is likely to be earned during the year), this will be the starting point. Tax is computed based on this and as per the stipulated schedule one would be required to pay the applicable installments.

Challan 280 needs to be filled while making such payment, one can pay either in cash/cheque/demand draft in any bank (ICICI [Get Quote], SBI [Get Quote], HDFC [Get Quote] etc.). Payment by cash and cheque (drawn on same bank - in some cases) will be done by filling the Tax Challan 280.

The counterfoil will serve as proof of payment. Banks would wait for clearance of funds before giving the counterfoil.  An ideal way to pay taxes is to do it online, it is a simple and hassle-free, the counterfoil is generated immediately. 

For online payment of advance tax, click here.

Keep in mind that one needs to use the Challan 280 while paying online or offline.  Also note that the assessment year is one year following the current financial year. e.g for paying tax relating to FY '08-09; the AY is 09-10.

Non-payment or short payment

Non-payment or short payment of advance tax will attract penal interest of 1%, incase one pays less in the first installment because, according to calculations for the first quarter payment (September 15), one expected less income.

But, for various reasons, income is now working out to more than the earlier estimation; one can increase the advance tax amount in the subsequent two installments.

For short payment of advance tax by more than 10 per cent or failure to pay advance tax, interest shall be payable on the amount of shortfall at the rate of 1% (simple interest) for every month.

Excess Payment

Any excess payment shall be refundable to the assessee, where the excess is more than 10% of the tax assessed; the Govt. will pay interest at the rate of 0.5% for every month from the AY to date of refund.

Action Plan for Salaried Employees

For income from salary, the employer is obligated to conduct tax deduction at source. The additional income (capital gains, interest income, house property income etc) can be declared with the employer to facilitate additional tax deduction, thereby relieving you of the requirement to go through the advance tax payment procedures every quarter.

Many employers do not collect this data and the same can be directly paid as per the procedure mentioned.

With only few days left for the first deadline of advance tax payments, we hope the article provides better clarity in adhering to the same.