Definition to deadline: What to know about advanced tax payment

Salaried employees with substantial other incomes should declare these to their employers to avoid tax liability

The income-tax (I-T) department wrote to an estimated 500,000 taxpayers between April and August over zero or low advance tax (AT) payments. It sent these intimations after analysing “significant transactions” data for the previous financial year and the first quarter of the current financial year. Taxpayers must understand AT-related rules to avoid getting a notice later.

What is advance tax?

Any tax-paying business or individual who is salaried or self-employed has to pay AT if their total tax liability exceeds Rs 10,000 in a financial year. Says Rubal Bansal Maini, partner, Luthra and Luthra Law Offices India: “The origin of this is the ‘pay-as-you-earn’ scheme. The objective is to facilitate early tax collection for the government and to help taxpayers avoid the hardship of finding huge funds to pay tax.”

Salaried individuals

For salaried employees, the employer calculates the tax liability and deducts TDS (tax deducted at source) from the employee’s salary. Hence, they are not liable to pay AT. “However, if a salaried person has income other than salary (like rent, income, interest from fixed deposits, etc), and if the tax liability on such income equals or exceeds Rs 10,000, then they are liable to pay AT on those other incomes,” says Maneet Pal Singh, partner at IP Pasricha, a chartered accountancy firm.  Even then an employee can avoid AT by declaring this income with her employer, who can deduct additional tax evenly from the salary.

When estimating AT liability, prepaid taxes like TDS or tax collected at source are subtracted from the calculated tax liability. Says Dipen Mittal, deputy general manager at Taxmann, an online source for researching taxes: “If an employee fails to provide details of other income or deductions to their employer, the deduction of TDS can fall short, leading to an AT liability that needs to be settled later.”

If you have changed jobs, provide the salary details of the previous employer to the new employer to account for the same for TDS deduction, or else you may be liable to pay AT. Says Archit Gupta, chief executive officer of Clear, a tax and financial services software platform: “If the new employer is not deducting tax as it should, pay the tax yourself to avoid interest on non-payment of AT.”

Professionals

Professionals must pay instalments  every quarter on or before the due date, failing which they are charged interest. Says Suresh Surana, founder of RSM India, a network of tax and consulting experts: “Specified professionals such as doctors, lawyers, architects, etc., who have opted for the presumptive scheme under Section 44AD or 44ADA of the I-T Act, are required to pay their entire AT liability in one instalment (vis-à-vis quarterly instalments applicable to other taxpayers) on or before March 15 of the relevant financial year.”

The presumptive income scheme is applicable only to resident assessees whose total gross receipts from profession do not exceed Rs 50 lakh. If the amount of cash received during the previous year does not exceed 5 per cent of total gross receipt, the threshold limit for total gross receipt shall be Rs 75 lakh instead of Rs 50 lakh, effective assessment year 2024–25. Note this change and calculate AT accordingly. Maini states that any payment made as AT on or before March 31 will be considered as AT for that financial year.

Non-resident Indians (NRIs)

NRIs are liable to pay income tax in India on income derived from Indian sources. If their tax liability in a financial year exceeds Rs 10,000, they are obligated to pay AT. Says Prateek Goyall, partner at MV Kini, a law firm: “When an NRI receives salary income in India, whether directly or received on their behalf, it becomes subject to Indian tax regulations and is taxed at the applicable slab rate.”

Double taxation avoidance agreements (DTAAs) between India and other countries are a critical consideration for NRIs. Says Mittal: “If such an agreement is in place, the DTAA provisions can supersede the I-T Act provisions if they are more favourable to the taxpayer. Hence, carefully evaluate the DTAA provisions as they can significantly impact tax liability.”

Any person making payments to an NRI must withhold tax at the prescribed rates if those payments are taxable in India. Says Mittal: “Non-residents should be well-informed about withholding tax implications because it is factored in when calculating estimated tax liability for AT purposes.”

Senior citizens

Singh informs that a resident senior citizen (age 60 years or above) not having any income from a business or profession is not liable to pay AT.

Non-resident senior citizens, regardless of the nature of their income, are liable to pay AT. Says Mittal: “Non-residents must adhere to AT provisions even if their income is solely from 

investment sources.”

Points to keep in mind

Failure to pay AT or underpayment may result in penal interest under sections 234B and 234C of the I-T Act. Says Ankit Jain, partner at Ved Jain & Associates, a chartered accountancy firm: “Missing payment by a single day in a quarter adds an interest liability of 3 per cent.”

Singh explains that no interest is charged if the shortfall in AT payment is due to unexpected or underestimated capital gains or speculative income. He adds that the interest, when applicable, is 

calculated using simple interest.

Surana urges taxpayers to download the challan generated after AT is paid, as the BSR code and challan number will be required while filing tax return.