Advance Tax

1. What is Advance Tax?

Answer: Advance tax is a tax paid in advance on estimated annual income, as and when income is earned. It is based on the principle of “Pay-as-you-earn”.

2. Who is liable to pay advance tax?

Answer: As per section 208 of Income Tax Act, any person whose estimated tax liability for the current financial year is ₹10,000 or more, shall be liable to pay advance tax.

3. What happens if one fails to pay advance tax?

Answer: Non-payment or underpayment of advance tax attracts interest and penalty under section 234B and 234C.

4. Is an NRI liable for payment of advance tax?

Answer: Any NRI whose income accused in India exceeds a limit of ₹ 10,000, shall be liable to pay tax.

5. Is a 60 year old person earning an income from business, liable to pay advance tax?

Answer: Yes, any senior citizen earning any income from a business is liable to pay advance tax. However, an income from service or pension income is exempted from this section for senior citizens.

6. Can one pay more than the required advance tax?

Answer: Yes, if there is a possibility to earn more than the estimated income during the financial year, a person is advised to pay more than the estimated advance tax.

7. Can one revise the advance tax paid earlier?

Answer: Yes, if there is any change in estimated income, one can revise the advance tax paid earlier and can settle it in the subsequent installment.

8. How can one pay advance tax?

Answer: Advance Tax can be paid easily by visiting an online-portal of the tax department through online banking, NEFT, RTGS, or offline by visiting authorized bank branches.

9. What are benefits of Advance Tax System?

Answer: An Advance Tax System benefits both the government and the taxpayer. It ensures continuous inflow of revenue of the government, and reduces the burden of the taxpayer to pay the lump-sumamount of tax at the end of the year.

10. What if one fails to pay the last installment of an advance tax on the due date?

Answer: The due date for the payment of the last installment is on 15th March, but if someone fails to do so, he/she has an option to pay such installments till 31st March.

Advance Tax is defined as an income tax paid on an estimated annual income to the government before the end of the financial year. The taxpayers estimate their total annual income for the financial year, calculate their tax liability based on this estimate, and make periodic payments of taxes. This means instead of paying a lump-sum tax amount at the end of a financial year, taxes are paid in installments on specific due dates decided by the tax authority.

Key takeaways from Advance Tax:

• Advance Tax is based on the principle of “Pay-as-you-earn”.
• In India, every person whose estimated tax liability for the year is ₹10,000 or more, shall pay “Advance Tax” [Section 208, Income Tax Act].
• A system of advance tax benefits both the government and the taxpayer. For the government, the advance tax system ensures a regular and timely inflow of revenue, and for taxpayers, it reduces the burden of paying lump-sum amounts at the end of a financial period.