Last Day To Pay Advance Tax Is Today: Specified Incomes On Which Advance Tax Can be Paid Next Year

Today (December 15) is the last day to pay the third installment of advance tax. Remember that if you as a taxpayer fail to pay your advance tax this time you will have to pay penalties and interest for the delay.

According to Section 208 of the Income Tax Act, 1961, individuals who are projected to have tax liabilities of Rs 10,000 or above, after subtracting tax deducted at source (TDS) are required to pay advance tax.

If the advance tax amount deposited to the government is less than the prescribed amount, then a penalty under Section 234C is levied.

Certain income groups have been exempted under the Income Tax 1961, on which advance tax is not payable before the income becomes due/credited to one's bank account. These specified incomes would not be subject to penal interest under Section 234C given that advance tax is paid on the subsequent due date after the income became due or is paid.

Specified incomes where penal interest is not applicable:

• Any Capital gains income,
• Money earned from lotteries, crossword puzzles, horse racing, card games, any gambling or betting game income, etc.,
• Dividend income from an Indian company excluding deemed dividend
• Income under the head profits and gains from business or profession if the income has accrued or arisen for the first time. For example: a shopkeeper who who has just opened a shop cannot accurately determine how many customers he will get in the first year, so for the initial first year he cannot accurately predict his annual revenue. However, from the second year onwards, the shopkeeper cannot say that he is unable to estimate his annual sales, as he already has one year past data to have a rough estimate of the sales figure.

The above-mentioned incomes have been provided the relaxation for not paying penal interest because an accurate calculation of tax liability is not possible for the first time when someone starts a business. However, that does not mean that the advance tax is not to be paid.

The due date schedule to pay advance tax as per the Income-tax Act is as follows:

On or before June 15 (Q1) - 15% of the net estimated tax liability
On or before September 15 (Q2) - 45% of the net estimated tax liability minus advance tax already paid
On or before December 15 (Q3) - 75% of the net estimated tax minus advance tax already paid
On or before March 15 (Q4)- 100% of net estimated tax minus advance tax already paid

Understanding Advance tax payment with the help of an example:

Raja is an architect. Although MR. Rana is in a profession specified under Section 44AA(1) but he doesn't opt for the presumptive taxation scheme of Section 44ADA. His estimated tax liability for the year amounts to Rs. 1,00,000. He has paid advance tax of Rs. 15,000 by 15th June. In the month of August one of his clients paid a fee of Rs. 1,80,000 after deducting tax at the source of Rs. 20,000 (Such fees of Rs. 1,80,000 were considered at the earlier occasion for estimating the tax liability of the taxpayer). In this case how much of the advance tax he is required to pay in the remaining installments?

If the estimated tax liability of the taxpayer is Rs. 10,000 or more, then he has to discharge his tax liability in the form of advance tax. Advance tax is to be paid in different installments. The due dates for payment of different installments of advance tax in case of all assessees (other than the eligible assessees as referred to in section 44AD or section 44ADA) are as follows:

By 15th June - 15%
By 15th Sept - 45%
By 15 Dec - 75%
By 15th March - 100%

Considering the above dates, suppose Raja has to pay 15% of his estimated tax liability by 15th June. Hence, he has to pay Rs. 15,000 on account of advance tax by 15th June. While computing the advance tax liability, the taxpayer can deduct the tax at source from his income. In this case, at the time of estimation of the first installment, there was no TDS credit with Mr. Raja.

His estimated tax liability without TDS amounted to Rs. 1,00,000. In the month of August, he received Rs. 1,80,000 after deduction of tax of Rs. 20,000, hence, he got a TDS credit of Rs. 20,000. His tax liability after granting of credit of TDS will come to Rs. 80,000. In the second installment, i.e., by 15th September he should pay up to 45% of his revised tax liability.

Thus, he should pay up to Rs. 36,000 (i.e., 45% of Rs. 80,000) by 15th September. He has already paid Rs. 15,000 by 15th June and, hence, he should pay the balance of Rs. 21,000 by 15th September. In the third installment, i.e., by 15th December he should pay 75% of his estimated tax liability. Thus, he should pay Rs. 60,000 (i.e., 75% of 80,000) by 15th December. He has already paid Rs. 36,000 till 15th September and, hence, he should pay a balance of Rs. 24,000 by 15th December (i.e., Rs. 60,000 - Rs. 36,000).

Finally in the fourth and final installment, i.e., by 15th March, he should pay 100% of his estimated tax liability. Thus he should pay Rs. 80000 by 15th March. He has already paid Rs. 60000 till 15th December and hence, he should pay Rs. 20000 by 15th March (i.e., Rs.80000-Rs.60000).