Fundamentals of Advance Tax as per The Income Tax Act 1961: Basic Particulars

The Income Tax Act of 1961, which forms the cornerstone of India's tax framework, incorporates numerous provisions designed to ensure a consistent source of government revenue. Among these provisions, the concept of advance tax stands out. 

Also referred to as 'pay-as-you-earn' tax, advance tax mandates that taxpayers pay their income tax in installments throughout the fiscal year, rather than settling the entire amount at year-end. 

This article provides a comprehensive exploration of advance tax, covering its significance, applicability, calculation, due dates, and the consequences of non-compliance.

Who Needs to Pay Advance Tax:

Advance tax is relevant for the following taxpayer groups:

1. Individuals, including salaried employees: If your annual tax obligation (after considering TDS and other relevant credits) surpasses Rs. 10,000, you must comply with advance tax regulations.

2. Self-employed professionals and business proprietors: Individuals with a total tax liability exceeding Rs. 10,000 are also obligated to adhere to advance tax guidelines.

3. Corporate entities: Irrespective of the tax amount owed, all companies, whether public or private, are obligated to pay advance tax.

Importance of Advance Tax:

Advance tax fulfills several crucial roles:

Steady Revenue Stream: It guarantees a consistent government income throughout the fiscal year, enabling the funding of public services and development initiatives.

Deterrence Against Tax Evasion: The phased payment of taxes minimizes the chances of individuals and businesses evading their tax responsibilities, as the tax collection process is distributed over the year.

Mitigation of Interest Charges: Timely payment of advance tax assists taxpayers in evading interest penalties on delayed payments.

Advance Tax Payment Deadlines:

Advance tax is disbursed in portions throughout the fiscal year. Here are the deadlines for these installments:

- June 15th: 15% of the total projected tax liability.

- September 15th: 45% of the estimated tax liability, minus the first installment amount.

- December 15th: 75% of the projected tax liability, minus the first two installments' amounts.

- March 15th: 100% of the estimated tax liability, reduced by the payments made in the first three installments.

How to Make Advance Tax Payments?

You can pay advance tax through various methods, such as online payments, visiting authorized bank branches, or utilizing your bank's Internet banking service. Online payment is convenient and simple, and you can find the necessary payment forms on the internet.

How To Pay Advance Tax Online?

Following are the steps for paying advance tax online

Go to the Tax Information Network (TIN) website of the Income Tax Department of India & click on “Proceed” under the CHALLAN NO./ITNS 280 option.

Next, enter the appropriate tax amount, payment type, mode of payment, PAN, assessment year, and other requested details in the challan.

Double-check all the entered data for accuracy.

You will be redirected to the bank's website to complete the payment.

Upon successful payment, a tax receipt will be displayed on the screen.

Make sure to save a copy of this receipt for future reference. The receipt will contain payment details, including the BSR code and challan serial number. When filing your tax return, remember to include the BSR code and challan number from the tax receipt.

Penalties for Not Adhering to Advance Tax Rules:

Failure to pay advance tax in full or making payments below the specified percentages can result in penalties:

1. Interest on Default: You may incur interest charges as per Section 234B, which amounts to 1% per month or part thereof on the unpaid advance tax.

2. Interest on Delayed Payment: If you delay the payment of any installment, Section 234C applies, resulting in a 1% per month interest charge on the shortfall from the due amount.

3. Penalty for Non-Payment: Under Section 221, a penalty can be imposed if you do not fulfill your entire advance tax obligation. This penalty can be as high as the unpaid tax amount.

Conclusion

Summing it up, advanced tax plays a crucial role in India's tax system by ensuring a steady income stream and reducing the chances of tax evasion. It's important for taxpayers to be aware of the rules, deadlines, and potential penalties related to advance tax to avoid unnecessary interest charges and fines and to remain compliant with the Income Tax Act of 1961.

Also Read: Supreme Court: DTAA Requires Central Notification Under Section 90 for Enforcement

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