Dealing with the intricacies of India’s advance income tax system Dealing with the intricacies of India’s advance income tax system

Dealing with the intricacies of India’s advance income tax system
06 Dec 2018

Anyone in India with an estimated tax liability of more than Rs10,000 (US$145) in a given financial year after paying Tax Deducted at Source, is required to settle their income tax bill in advance. This situation applies to all taxpayers, whether they are salaried, freelance or operate as a business.

Under the advance tax method, employees must pay their estimated tax liabilities in instalments during the same financial year. In other words, it is a ‘Pay as You Earn’ tax.

For example, for the financial year (FY) 2018-19, the due dates for advance tax payments to be made are:

  • On or before 15 June 2018 – 15% of estimated advance tax;
  • On or before 15 September 2018 – 45% of total estimated advance tax;
  • On or before 15 December 2018 – 75% of total estimated advance tax;
  • On or before 15 March 2019 – 100% of total estimated advance tax.

If the total amount of tax paid exceeds the actual liability, which is worked out when filing final tax returns at the end of the year, the excess will be refunded.

While advanced income tax is calculated in the same manner as normal income tax and the same tax slabs apply to respective taxpayers, it should be noted that the methods of filing are different.

Who is exempt from paying tax in advance?

People with tax liabilities of less than Rs10,000 (US$145) are required to pay their income tax during the year of assessment (AY). Senior citizens of 60 years or older who do not run a business are also exempt from paying tax in advance. They are usually expected to file returns at the end of each calendar year.

Businesses that opt to use the presumptive taxation scheme (PTS) are likewise exempt from having to pay advance tax in instalments. Instead, they are expected to make one advance tax payment on or before 15 March, 2019. The same is not true of individual professionals though – they are still required to pay their advance tax in instalments.

Penalties

If advance tax is not paid as per the schedule, a charge amounting to 1% interest on the estimated instalment value will be applied each month. A 1% interest rate will likewise be charged if 90% of the total tax bill is not paid before the end of the FY.

Penalties are also applied if, during the normal tax filing process at the end of each FY, individuals do not pay their advance tax but have accrued liabilities of more than Rs10,000 (US$145). 

How to file advance tax

  1. Calculate your estimated tax liability for the coming financial year by using the usual tax slabs, deductions, and surcharge;
  2. Select Challan No. 280 (Payment of Income Tax and Corporate Tax) on the Government’s tax information network;
  3. Fill in the applicable tax type and your Permanent Account Number details on the e-payment page, before choosing the assessment year (for example, for FY 2018-19, it will be AY 2019-20) and the ‘(100) advance tax’ option for payment;
  4. Make the advance tax payment using your bank or debit card;
  5. Keep your ‘challan (receipt), which will come with a specific number, in a safe place as you will need to quote it in future tax filings over the financial year ahead.

 By Rohini Singh.

This article was first published on India Briefing

Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email us at info@dezshira.com. Further information about our firm can be found at: www.dezshira.com.

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Anyone in India with an estimated tax liability of more than Rs10,000 (US$145) in a given financial year after paying Tax Deducted at Source, is required to settle their income tax bill in advance. This situation applies to all taxpayers, whether they are salaried, freelance or operate as a business.

Under the advance tax method, employees must pay their estimated tax liabilities in instalments during the same financial year. In other words, it is a ‘Pay as You Earn’ tax.

For example, for the financial year (FY) 2018-19, the due dates for advance tax payments to be made are:

  • On or before 15 June 2018 – 15% of estimated advance tax;
  • On or before 15 September 2018 – 45% of total estimated advance tax;
  • On or before 15 December 2018 – 75% of total estimated advance tax;
  • On or before 15 March 2019 – 100% of total estimated advance tax.

If the total amount of tax paid exceeds the actual liability, which is worked out when filing final tax returns at the end of the year, the excess will be refunded.

While advanced income tax is calculated in the same manner as normal income tax and the same tax slabs apply to respective taxpayers, it should be noted that the methods of filing are different.

Who is exempt from paying tax in advance?

People with tax liabilities of less than Rs10,000 (US$145) are required to pay their income tax during the year of assessment (AY). Senior citizens of 60 years or older who do not run a business are also exempt from paying tax in advance. They are usually expected to file returns at the end of each calendar year.

Businesses that opt to use the presumptive taxation scheme (PTS) are likewise exempt from having to pay advance tax in instalments. Instead, they are expected to make one advance tax payment on or before 15 March, 2019. The same is not true of individual professionals though – they are still required to pay their advance tax in instalments.

Penalties

If advance tax is not paid as per the schedule, a charge amounting to 1% interest on the estimated instalment value will be applied each month. A 1% interest rate will likewise be charged if 90% of the total tax bill is not paid before the end of the FY.

Penalties are also applied if, during the normal tax filing process at the end of each FY, individuals do not pay their advance tax but have accrued liabilities of more than Rs10,000 (US$145). 

How to file advance tax

  1. Calculate your estimated tax liability for the coming financial year by using the usual tax slabs, deductions, and surcharge;
  2. Select Challan No. 280 (Payment of Income Tax and Corporate Tax) on the Government’s tax information network;
  3. Fill in the applicable tax type and your Permanent Account Number details on the e-payment page, before choosing the assessment year (for example, for FY 2018-19, it will be AY 2019-20) and the ‘(100) advance tax’ option for payment;
  4. Make the advance tax payment using your bank or debit card;
  5. Keep your ‘challan (receipt), which will come with a specific number, in a safe place as you will need to quote it in future tax filings over the financial year ahead.

 By Rohini Singh.

This article was first published on India Briefing

Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email us at info@dezshira.com. Further information about our firm can be found at: www.dezshira.com.

OTHER ARTICLES THAT MAY INTEREST YOU

India restores minimum wage increase

Key payroll considerations in India

India tightens up on tax evasion

 

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