Advance tax is payable by every person whose net tax liability for the financial year is Rs. 10,000 or more. This includes every person be it salaried individual, professional, business owner, firm, company etc. However, a resident senior citizen (i.e., an individual of the age of 60 years or above during the relevant financial year) not having any income from business or profession is not liable to pay advance tax.
Income for the year and the tax liability thereon is estimated and then a specified percentage of the tax liability is paid at every due date during the year.
|Due Date||Advance Tax Payable|
|On or before 15th June||15% of Estimated Tax Liability|
|On or before 15th September||45% of Estimated Tax Liability less advance tax already paid|
|On or before 15th December||75% of Estimated Tax Liability less advance tax already paid|
|On or before 15th March||100% of Estimated Tax Liability less advance tax already paid|
In case of default in payment of advance tax on the due date interest shall be levied u/s 234B and 234C, as applicable. Interest u/s 234B is payable when advance tax paid is less than 90% of the tax due. Interest u/s 234C is payable for late payment of advance tax.
For salaried individuals whose tax is deducted at source, there is no need for advance tax payment unless they have some other sources of income such as capital gains, interest income, rental income, etc.
For example, Kavita earns income from salary Rs. 8 lakh and her employer has deducted the necessary TDS (tax deducted at source). She sells shares worth Rs. 5 lakh on 30th June 2021 and earns short term capital gains of Rs. 2.5 lakh.
Once, the capital gain arose it should be considered for payment of advance tax on or before the next due date i.e., in this case, advance tax on capital gains should be paid for 15th September, 15th December and 15th March due dates.
Kavita’s tax liability on short term capital gains of Rs. 2.5 lakh is Rs. 39,000 (@15% plus cess). If Kavita has not paid any advance tax until now, she can pay the total tax due of Rs. 39,000 on or before 31st March 2022 and avoid the interest u/s 234B.
However, interest u/s 234C for late payment of advance tax shall still be payable as she has delayed in payment of advance tax.
The net tax liability after considering all deductions, exemptions under the Income Tax Act, and credits to the extent of TDS, tax collected at source (TCS), minimum alternate tax (MAT) utilisation are to be considered for determination of advance tax liability.
For instance, Anita’s income from professional services is Rs. 12 lakh. She has paid insurance premium of Rs. 1.5 lakh. TDS of 50,000 has been deducted. Anita’s total tax liability after considering deduction u/s 80C for insurance premium is Rs. 1,32,600 of which Rs. 50,000 TDS has been deducted. Accordingly, Anita’s net tax liability remains to the tune of Rs. 82,600 and she should pay advance tax at the specified percentage on the respective due dates.
Now for instance, Akash earns income from salary Rs. 12 lakh and his employer has deducted the necessary TDS. Akash earns interest on fixed deposits Rs. 25,000. Tax on interest income @ 30% plus cess is Rs. 7,800. Akash believes that he need not pay advance tax on interest income as the net tax liability is less than Rs. 10,000. In this case, Akash’s belief is correct.
Now, for instance, Samrat is a non-resident Indian earning rental income of Rs. 15 lakhs from house property in India. Hence, his tax liability for FY 2021-22 is estimated at Rs. 1,32,600. Mr. Samrat attained age of 60 years on 31 Dec 2021. He believes that he is not liable to pay advance tax as he is a senior citizen and does not have any income from business or profession. This belief of Mr. Samrat is not correct as he is a non-resident Indian and so he will not be exempted from payment of advance tax. This benefit is only available to a resident senior citizen not having income from business or profession.
As we near the end of this financial year, if you have earned any long term / short term capital gains and want to save tax on the same, you can consider booking capital losses that may be arising due to the current market situation to be set off against the existing capital gains.
Accordingly, there will be no tax liability on capital gains and no question of advance tax liability. It is pertinent to note that long term capital loss can be set off against long term capital gains only. Short term capital loss may be set off against long term / short term capital gains.
Nitesh Buddhadev is founder at Nimit Consultancy