What are advance taxes? Who are liable to make advance tax payments?

Advance tax payments incorporate taxes which must be repaid to the government before the end of financial year.

India has more than 12 million taxpayers who fulfil the legal and moral obligation to pay taxes to the government. These taxpayers must understand the key components of the tax, such as Advance Income tax, to be able to pay taxes efficiently. To clarify any doubts in the taxpayers' minds, we bring you this article explaining Advance income tax payment, how it is calculated, and other associated requirements!

What is an Advance income tax payment?

Advance tax payment allows you to pay the government a portion of your expected income tax bill before the end of the fiscal year. In other words, it's a way to pay your taxes gradually rather than in full at the end of the fiscal year. This is frequently necessary for people and businesses with high incomes and failing to pay advance tax can result in penalties.

Who should make an advance tax payment to the government?

As per the income tax act the following attributes must be satisfied for a taxpayer to pay advance taxes:

1. The individual's tax liability must be equal to or more than Rs 10,000.
2. The taxpayer must be a salaried individual or a self-employed individual.
3. The taxpayer is receiving income from capital investments.
4. The taxpayer earns interest from fixed deposits with a bank or financial institution.
5. The taxpayer has received winnings from a lottery.
6. The taxpayer earns rent from an owned property.

Kindly note that individuals over 60 without income through an occupation or a business do not need to pay advance taxes.

What are the requirements for advance tax payments?

The taxpayers who are not covered under the 44AD or 44 ADA section of the income tax act, the following requirements must be fulfilled for advance tax payments:

1. The taxpayer must make an advance tax payment of more than 15 percent of the total calculated taxes before June 16. 
2. The taxpayer must make an advance tax payment of more than 45 percent of the calculated taxes before September 16.
3. The taxpayer must make an advance tax payment of more than 75 percent of the total calculated taxes before December 16. 
4. The taxpayer must pay the remaining tax payments before March 16 of the upcoming year. 

How can a taxpayer calculate advance tax payments?

The most important question that comes into a taxpayer's mind is how to calculate advance tax. The answer to this question is in the following steps:

Step 1: Understand which tax slab rates will apply to you while calculating taxes.

Step 2: Gain an understanding of the tax rebates you can receive as per Section 87A of the income tax act.

Step 3: Keep a record of any TDS which has been deducted or which is to be deducted from your earnings by other taxpayers.

Step 4: Calculate the earnings which you have made during the financial year. These earnings include income from a job or business, income from investments, income from the owned property, and all other forms of income.

Step 5: Estimate the tax associated with your income as per the tax slab rates.

Step 6: Estimate the tax rebates or deductions you will be claiming.

Step 7: Deduct the amount calculated in step 6 from the amount in step 5 to obtain the tax to be paid.

What happens if a taxpayer fails to pay advance tax?

If a taxpayer does not pay advance taxes, they would be liable to pay the following fines:

1. For missing the June 16 deadline: 1% of the 15% advance tax payment for 3 months.
2. For missing the September 16 deadline: 1% of the 45% advance tax payment for 3 months.
3. For missing the December 16 deadline: 1 percent of the 75% advance tax payment for 3 months.
4. For missing the March 16 deadline: 1% of the 100% advance tax payment for 3 months.

Kindly note that if the taxpayer does not miss the entire tax payment but only a part of it, the paid amount will be deducted from the total required taxes before calculating the fine.

Also, watch: What is Advance tax?

Final Words

Each taxpayer must make advance tax payments on time to avoid fines or legal consequences. The taxpayers must understand that the taxes paid are crucial for the country's development, and they must pay taxes on time.