Advance Tax Applicability and Calculation of Advance Tax under section 208

In India, a taxpayer is required to pay advance tax on fulfilling certain criteria as provided under section 208 of the Income Tax Act. Today in this article we will discuss the Applicability of advance tax and who is liable to pay advance tax during the year.

Who is required to pay Advance Tax?

Every taxpayer whose total estimated tax liability for the year is more than Rs.10,000 is required to pay advance tax. Advance Tax is payable on all the income whether it's a business income or capital gain or salary or any other source of income.

Who is not required to pay Advance Tax?

Following taxpayers are not required to pay advance tax:

  • Whose estimated tax liability is less than Rs.10,000 in a financial year

  • Resident Senior Citizen (60 years or more) not having business/profession Income

How to calculate Advance Tax liability?

Advance tax is to be calculated as per slab rates on estimated income during the financial year. From AY 2021-22, a taxpayer has an option to pay tax under the new regime or old regime subject to certain conditions. Also, while calculating advance tax, the effect of the rebate under section 87A where total Income does not exceed Rs.5,00,000 is to be considered, and education cess @ 4% is to be levied on Income Tax.

Also, deductions if any, such as under 80C, 80CCC, 80CCD, 80D, 80G, 80E, Deduction for Interest on Home loan under section 24, etc shall be reduced to calculate taxable income.

The due date for advance tax payment:

The due date for advance tax payment is as follows:

Point to be noted for Advance Tax:

A taxpayer having income from salary, business (other than presumptive) and any other source of income including capital gain shall pay advance tax as above.
Taxpayers declaring Income under presumptive business under section 44AD or 44ADA has to pay advance tax for a financial year in single instalment on or before 15th March.
TDS if any, deducted during the year shall be reduced from the advance tax liability and taxpayer has to pay balance tax in instalments as applicable.
Any amount of tax paid on or before 31st March of the financial year, is to be considered as an advance tax.
If any taxpayer has income from capital gain or any casual income i.e Gambling Income or winning income or any such other significant income, on or after 15th March shall pay tax on such income by 31st March

E.g. Mr. Aakash having estimated total business profit Rs.4,25,000/-, and his estimated income from other sources is Rs.1,50,000/- in FY 2021-22 (AY 2022-23), so in this case total taxable income is Rs.5,75,000/-. Tax on Rs.5,75,000/- as per old rate is:

For Income up to Rs.2,50,000 : Tax is NIL

For Income Rs.2,50,000 to Rs.5,00,000 : Tax @ 5% i.e. Rs.12,500/-

For Income above Rs.5,00,000 i.e (5,75,000-5,00,000) : Tax @ 20% i.e Rs. 15,000/-

Total Tax Amount Rs.27,500/-

Add: Education Cess @4% Rs.1100/-

Total Liability would be Rs.28,600/-

Thus Rs.28,600/- would be payable in 4 installments in FY 2021-22 as follows:

  1. 1st Instalment should be paid by 15th June: 15% of total tax i.e Rs.4,290/-.

  2. 2nd Instalment should be paid by 15th Sept: 45% of total tax i.e Rs.8,580/- [(45% of Rs.28,600 - Rs.4,290 (1st instalment if paid)].

  3. 3rd Instalment should be paid by 15th Dec : 75% of total tax i.e Rs.8,580/- [75% of Rs.28,600 - Rs.12,870 (1st and 2nd Instalment if paid)].

  4. 4th Instalment should be paid by 15th March: 100% of total tax i.e. Rs.7,150/- [Balance amount of Rs.28,600 less 1st, 2nd and 3rd installment, if paid].

Interest on late payment or non payment of Advance Tax (Section 234B & 234C)

Section 234 B: Default in payment of Advance Tax

If a taxpayer fails to pay advance tax or he has paid advance tax which is less than 90% of the assessed tax, in such a case taxpayer has to pay interest on balance advance tax at simple interest of 1% for every month or part of the month. Such is calculated from 1st April i.e. from the next day of the end of the financial year till the date of payment.

E.g. Continuing the above example where Mr. Aakash has to pay advance tax of Rs.28,600/-, lets assume that he has paid Rs.20,000/- as advance tax and balance is payable and he has paid such balance in July. Interest on balance assessed tax under section 234B will be calculated as follows:

Total tax Liability : Rs.28,600/-

Less: Advance Tax Paid Rs.20,000/-

Balance Payable: Rs.8,600/-

Total Interest due under section 234B will be for the period April to July.

Rs.8,600/- x 1% x 4 month = Rs.344/-

Section 234C: Default in payment of Advance Tax (Underestimated Instalments)

When a taxpayer has paid advance tax which is underestimated or he has not paid advance tax at all then in such case Interest will be payable. Such interest is @ 1% p.m. for a period of 3 months for every deferment. But, for the last installment on 15th March, interest would be 1% for 1 month only.

Continuing the previous example, assuming that part payment of Advance Tax has been made, interest under 234C will be calculated as follows:

Interest Calculation under section 234C on Advance Tax

Calculate Advance Tax Liability:

To calculate advance tax liability taxpayers can use the official advance tax calculator provided on Income Tax Portal. To use the official advance tax calculator, click here.

Challan for Advance Tax Payment:

You can pay advance tax using Tax Information Network (TIN) and select Challan No.280, fill in the requisite details, choose your preferred bank and pay using net banking or debit card. Keep the challan in your record for future reference and it is to be mentioned while filing an income tax return.

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