How advance tax can help you stay on track with tax payments

Not sure if you need to pay advance taxes? This article answers that and any other question you might have about advance taxes.

All about paying advance tax has been explained with the help of the following points:
  

1. Who should pay advance tax?
2. When is there a need for advance tax payment?
3. When do you pay advance tax?
4. Advance tax payment – how to do it?
5. Things to keep in mind

As the name suggests, advance tax is the income tax that you pay in advance. This means that instead of paying taxes at the end of the year, you pay it in instalments and in advance. The method is also known as ‘Pay as You Earn Tax.’

Who should pay advance tax?

If your employer deducts tax at source on your salary, then you need not worry about paying advance tax. But if you earn any income other than your salary, then you must pay an advance tax. If your tax liability exceeds Rs. 10,000 in a financial year, you need to pay this tax. Bear in mind that you must pay your taxes in the same year as your year of income.
 

Related link: Income Tax Returns: Who should file them and when?

When is there a need for advance tax payment?

Figure out if your tax liability exceeds Rs. 10,000 in a financial year. Here’s an example to understand of how advance tax is calculated:

    •    Step 1:  How much is your non-salary income?

Let’s say you earn Rs. 5,000 annually, apart from your salary.

    •    Step 2: Deduct your expenses

Any expense such as rent, phone bills etc. can be deducted in this step.

    •    Step 3: Add any other income

Rent that you receive, capital gains etc. will be added here.

Let’s assume all your other income is a total of Rs. 6,000.

    •    Step 4: Add it all up
Add the Rs. 6,000 (received in Step 3) and the Rs. 5,000 (calculated in Step 1).
Your total non-salary taxable income is Rs. 11,000.

Since this amount is higher than Rs. 10,000, you will have to pay advance tax. On the other hand, if your total was less than Rs. 10,000, you would have been exempted from Advance Tax payment.

Related: How to File your Income Tax Returns (ITR) Online

When do you pay advance tax?

The income tax department specifies due dates for paying advance tax.

For the Financial Year 2017-2018:

    •    For individuals, corporate taxpayers, and taxpayers who have opted for presumptive taxation having business income from plying, hiring or leasing of goods carriages Section 44AE:
 

Related: Why December is the most important month for Tax Payers

Advance tax payment – How to do it?

You can advance tax payment can be done via both, online and offline methods using the Challan 280.
 

Online - Pay it via the Income Tax Department’s site or the NSDL (National Securities Depository Limited) site. Select Challan 280, fill the form and use it to pay your advance tax.
 

Offline - The Income Tax Department authorises a few banks that can collect your tax payments. Download the Challan 280, fill the form and submit it to the nearest authorised bank branch.

Related: How to plan your taxes [e-Book]

Things to keep in mind:

• In case you miss your advance tax payment by the first deadline, you will then have to pay interest along with it. Interest is calculated at 1% of your total amount due for every month, starting from the month of the deadline till the month you pay off the tax completely.
• Exemptions from advance tax: 

1. Any senior citizen (above 60 years of age) who does not own any business is exempted.
2. Any taxpayer who owns a business with a turnover of more than Rs. 2 Lakhs in one financial year, and has opted for presumptive schemes is exempted.