Answer By law4u team
In India, advance tax is a system where taxpayers pay their estimated tax liability in installments during the financial year instead of paying the entire tax at the end of the year. It is governed by the Income Tax Act, 1961, and applies to certain categories of taxpayers. Here’s a detailed explanation: 1. Who Is Required to Pay Advance Tax? Advance tax must be paid by any person whose total tax liability in a financial year exceeds ₹10,000, after accounting for tax deducted at source (TDS). The main categories of taxpayers include: 1. Salaried Individuals: Usually, salaried employees do not need to pay advance tax because their employer deducts TDS on a monthly basis. However, if a salaried person has additional sources of income like interest, rental income, capital gains, or freelancing income, and the tax liability exceeds ₹10,000, advance tax is required. 2. Self-Employed Individuals and Professionals: People running businesses, freelancers, consultants, or professionals who do not have TDS deducted at source must pay advance tax on their estimated income. This ensures the government receives tax revenue regularly during the year. 3. Companies: All companies, whether domestic or foreign, are required to pay advance tax on their estimated profits. This applies regardless of whether they have income from business operations, capital gains, or other sources. 4. Other Income Earners: Income from capital gains, property rental, interest on savings or fixed deposits, and speculative business income may require advance tax payments if the tax liability exceeds ₹10,000. 2. When Is Advance Tax Paid? Advance tax is usually paid in installments according to the due dates specified by the Income Tax Department: For Individuals and Non-Corporate Taxpayers: 15% of estimated tax by 15th June 45% of estimated tax by 15th September 75% of estimated tax by 15th December 100% of estimated tax by 15th March For Corporate Taxpayers (Companies): Companies are required to pay 100% of estimated tax by 15th March (though some exceptions exist for special cases). 3. Consequences of Not Paying Advance Tax If a taxpayer fails to pay advance tax or pays less than the required amount, they are liable to interest under Sections 234B and 234C of the Income Tax Act. This interest is charged on the shortfall in advance tax and is calculated until the actual payment is made. Therefore, paying advance tax on time helps avoid unnecessary interest and penalties. 4. Summary Advance tax is applicable to any taxpayer whose annual tax liability exceeds ₹10,000, after deducting TDS. Salaried individuals may not need to pay if TDS covers their tax liability. Self-employed individuals, professionals, companies, and other income earners must pay advance tax on estimated income. Payment is made in installments throughout the financial year to reduce end-of-year tax burden and ensure regular tax revenue for the government.
