Do you need to pay advance tax before September 15? Here's all you need to know

The concept of advance tax is based on pay-as-you-earn, which means the tax shall be paid in advance in the form of quarterly instalments during the financial year. It is a mandatory requirement that enables the government to receive tax revenue on a quarterly basis. This also reduces the burden on the taxpayers as the tax liability can be discharged through quarterly payments resulting in smaller cash outflows instead of a single large outflow. 

Who should pay advance tax before September 15? If you are a salaried individual but have other sources of income then you need to pay advance tax. On salary income, advance tax is paid by an employer on behalf of the employee. Similarly, if you do not depend on salary but have other sources of income such as capital gains, rent or fixed deposit then you need to pay advance tax on your income.

Yeeshu Sehgal, Head of Tax Markets, AKM Global, a tax and consulting firm, adds, “Advance tax shall be payable in every case where the amount of such tax payable by the taxpayer during a financial year is Rs 10,000 or more. Further, a taxpayer who has opted for presumptive taxation under the income tax act shall also be liable to pay advance tax. However, senior citizens (age 60 years or more) who do not have any income from business are not required to pay advance tax."

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It is essential to be mindful of the types of incomes earned during the financial year, whether small or large. For instance, if a taxpayer has made capital gains or business income in a given quarter, it is advisable to calculate the estimated taxable income for that quarter and pay advance tax thereon. 

What happens if one misses the date? If a taxpayer does not pay the advance tax or there is a shortfall in payment of the advance tax instalment on the due dates (September 15 as the due date for the second instalment for FY22-23), the due amount will attract an interest of 3 per cent per quarter for the first 3 quarters and 1 per cent for the final quarter.

“Further, an individual taxpayer will also be liable to pay an additional interest from April 1, 2023 (after the end of financial year 22-23) at the rate of 1 per cent per month on the shortfall of the total advance tax, in case the total advance tax paid by such an individual is less than 90 per cent of the total tax payable,” says Sehgal.

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Another point to be kept in mind is the correct details regarding the assessment year and payment challan to be chosen for the online payment of advance tax challan.

“The challan number 280 is used to pay advance tax and the Assessment year for FY 2022-23 is 2023-24. Once the advance tax is paid, it should be reflected in Form 26AS of the taxpayer returns and the credit of the same can be taken at the time of filing the income-tax return for FY 22-23,” says Sehgal.

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