Advance Tax at a Glance

One of the areas concerning income tax that most individual taxpayers are not clear about is Advance Tax. Contrary to what one may think, Advance Tax is not the tax your employer cuts from your gross salary every month before crediting your salary account. Neither is it the TDS that your bank cuts on the interest you earned on that fixed deposit. When the difference between the total income tax payable by you for the current year and the total tax deducted at source (TDS) already paid by you is Rs.5000 or more, you need to pay Advance Tax. It is a part of your total income tax liability. Advance Tax needs to be paid in 3 quarterly installments.

The table below explains how much Advance Tax is payable and when:
Let’s say your total projected tax liability# for the year (before any TDS is cut) is Rs.15000. The total TDS that has been cut is Rs.12000. The balance is only Rs.3000 which you can pay when you file your income tax return. You need not pay it in advance as per the above table. On the other hand, if your total tax liability is Rs.45000 from which Rs.30000 have been deducted at source, you would need to pay the balance Rs.15000 as Advance Tax. This amount will be payable as per the table above, viz. two installments of Rs.4500 each by 15th September and 15th December of the current Financial Year respectively, and Rs.6000 by 15th of March of the current Financial Year.

Note that you need not pay Advance Tax when your employer deducts tax at source from your Salary.

Consequences of not paying Advance Tax
If, by the time your tax assessment has been completed, you have not paid at least 90% of the total Advance Tax you owed, you will be charged interest. The interest rate will be 1% per month on the unpaid amount from April 1 of the next F.Y. up to the date of the assessment. Or if you have paid less tax than what you owed in any installment, you would be charged 1% per month interest on the unpaid amount from the current deadline to the deadline of paying the next installment.

It is, therefore, highly recommended that you keep detailed records of your investments, income from these investments and all proofs of tax deducted at source. Also have a good idea of how much tax you are likely to owe and whether you are likely to meet the condition to pay Advance Tax. This will hold you and your tax compliance record in good stead.

# Education Cess has not been considered for the purpose of illustration.