Who Should Pay Advance Tax?

Advance Tax is typically applicable to individuals, businesses, and corporate entities whose estimated tax liability for the financial year exceeds a certain threshold. This can be explained as:

1. Salaried Individuals with Additional Income: Salaried individuals who have additional sources of income, such as interest income, rental income, capital gains, or any other form of income that is not subject to Tax Deducted at Source (TDS), may be liable to pay advance tax if their overall tax liability is ₹10,000 or more.

2. Individuals with Income from Business or Profession: Self-employed individuals, freelancers, and professionals who earn income through business or freelance work are subject to pay advance tax if their tax liability exceeds ₹10,000. However, Businesses who opt for the presumptive taxation scheme under Section 44AD and Professionals opting for the presumptive taxation scheme under Section 44ADA, shall pay the whole amount of the advance tax in one instalment on or before 15 March or have the option to pay the tax dues by 31 March.

3. Corporate Entities: Companies, firms, and corporations are subject to pay advance tax if their estimated tax liability for the financial year exceeds the prescribed limit.

Note:

• Individuals aged 60 years or above (Senior citizens), and do not run a business, are exempt from paying advance tax.
• Non-payment of the advance tax or underpayment might result in interest or penalties imposed by the tax authorities.

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.