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Tuesday, June 25, 2013

What is Advance Tax in India

Just like Wealth Tax, "Advance Tax" is another element of taxation which often gets neglected by most of us, probably because of lack of awareness... but remember that as you grow rich, you better equip yourself with all the required knowledge, for ignorance is never an excuse.


What is Advance Tax?
Advance tax is the income tax payable if your tax liability exceeds Rs 10,000 in any financial year. Advance tax should be paid in the year in which the income is received. Hence, it is also known as the 'pay-as-you-earn' scheme.

Is it applicable to you?
Advance tax is applicable when an individual has sources of income other than his/her salary. For instance, if one is earning through capital gains, interest on investments, lottery, house property or business, the concept becomes relevant.

Is there any Rebate / Penalty applicable?
Any rebate due (in case you paid more than your tax liability) fetches you an interest of 0.5 per cent every month, or, six per cent annually, as in the case of an income tax refund.
However, if you don't pay the advance tax on time, you'll be charged one per cent every month, or, 12 per cent a year.

Who should file it?
If you are earning income only via your salary, you need not pay advance tax as your employer deducts tax at source (TDS). However, you still need to file it if you have other sources of income, increasing your liability to more than Rs 10,000. Professionals (self-employed) and businessmen will have to pay taxes in advance as, given their business income, the liability can be huge. The same goes for companies and corporates.
- While employers deduct TDS on salaries, advance tax is paid on income that has not been subjected to TDS.
- There is a need to pay advance tax only when the advance tax payable is Rs 10,000 or more during the year. This might seem to look like a loop but the way in which it works is that the working needs to be done and if the tax shortfall is Rs 10,000 or more than this will trigger the advance tax provisions.  If the tax to be paid is less than this then there is no need to pay advance tax.
- It is important to note that in the entire working the existing tax deduction at source will have to be reduced from the estimated tax liability to see whether the requirement of the advance tax is triggered for an individual. 
- Thus there could be a situation where a person has to pay Rs 1.2 lakh of tax on his estimated income for the year but if the entire amount is already being deducted at source then there is no need for any advance tax payment.
- In another case where the tax to be paid is Rs 15,000 for the year but no amount is deducted at source then the advance tax requirements will have to be met.


When to file advance tax?
Advance tax or self-assessment taxes have to be paid on the 15th of September, December and March, in installments of 30 per cent, 30 per cent and 40 per cent, respectively, for non-corporates. Corporates need to pay it on the 15th of June, September, December and March.

How to file it?
You can pay advance tax using the tax payment challan at the bank branches empaneled with the Income Tax (I-T) department. It can be deposited with the Reserve Bank of India, State Bank of India, ICICI Bank, HDFC Bank, Indian Overseas Bank, Indian Bank, and other authorised banks. There are 926 branches in India that can accept advance tax payments. You could also pay it online through the I-T department or the National Securities Depository site.


Cheers

Manoj Arora
Lead a Financially Free Life !!

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