You must have fulfilled your obligation to the taxman by filing your income tax return by the extended August 31 deadline. But that is not all. The June 15 deadline for paying the first instalment of advance tax for the current financial year is long gone, and the September 15 deadline for the next instalment is around the corner.

Who should pay

Advance tax means paying tax as you earn the money. Tax deducted at source (TDS) is a form of advance tax.

According to the Income Tax Act, if you expect your tax liability over and above TDS to exceed ₹10,000 in a year, you must pay advance tax every quarter, failing which you will be charged an interest/penalty for late payment or non-payment.

Advance-tax obligations fall on salaried employees, professionals and those running proprietary businesses. Individuals over 60 years of age, who do not have business or professional income are exempt from advance-tax payments.

To project your likely tax liability for a year and check if you need to pay advance tax, you can take the help of your auditor who normally helps file your returns. If you use e-filing intermediary websites to prepare your returns, you can seek their guidance, too. Many have year-round advisory services that you can sign up for. If you are a bit tax-savvy, you can also use online calculators. One such calculator is available at incometaxindia.gov.in.

How much to pay

Assessees including individuals must pay advance tax in four instalments during the financial year as and when the income is earned. Not less than 15 per cent of such advance tax must be paid on or before June 15; not less than 45 per cent by September 15; up to 75 per cent by December 15, and up to 100 per cent by March 15 of the financial year to which your income relates to.

However assessees who have opted for the presumptive taxation scheme under Section 44AD or 44ADA need to pay up to 100 per cent of the advance tax only by March 15.

In the race to file your returns, what if you missed the June 15 deadline this year?

Say, your tax liability for 2018-19 after all TDS cuts is ₹30,000. You must have paid at least ₹4,500 (15 per cent of 30,000) by June 15 itself. If not, a 1 per cent monthly interest will be charged on the shortfall until the next instalment, i.e., for three months. So the interest amount here works out to: ₹4,500x1/100x3 = ₹135. If you don’t pay ₹13,500 (45 per cent of ₹30,000) by September 15, a 1 per cent monthly interest will be charged on the shortfall until September 15. The interest now comes to: ₹13,500x1/100x3 = ₹405. If you don’t pay the third instalment, the interest on ₹22,500 (75 per cent of ₹30,000) will amount to: ₹22,500x1/100x3 = ₹675. In case you miss the fourth instalment, too, interest on ₹30,000 will be calculated for a month: ₹30,000 x1/100 = ₹300. In all, interest payable totals ₹1,515. This is calculated under Section 234C of the Income Tax Act.

In addition, if the total advance tax paid (including TDS) is less than 90 per cent of the tax liability at the end of the financial year, the interest under Section 234B is payable. Interest under Sec 234B is calculated at the rate of 1 per cent per month, and is payable on the shortfall from April 1 of the assessment year (April 1, 2019) till the date of payment. In the above example, assuming you pay when you file your return in July 2019, you will have to pay ₹30,000x1/100x4 = ₹1,200, in addition to the ₹1,515.

Since interest under Section 234B is calculated only from April 1 of the assessment year, you can save on this outgo by paying whatever is due before March 31 of the financial year, even if you have missed the March 15 deadline.

After having paid the first, second or the third instalment of the advance tax, if there is a change in the tax liability, you can revise the quantum of advance tax in the remaining instalments and pay the tax as per the revised estimates.

Finally, breathe easy if you pay advance tax regularly and then it becomes excessive. You can claim a refund of the excess while filing your return.

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