As the financial year 2021-22 is coming to an end, it is time for the taxpayers to assess whether any advance tax liability is due. Any person who has taxable income is liable to pay income tax on his total income earned during a particular financial year. Income tax is calculated as per the provisions of the Income Tax Act, 1961 (the Act) and is paid directly to the Central Government in various ways, such as tax at source (TDS), tax collected at source (TCS), advance tax and self – Assessment tax.
For salaried individuals, the employer withholds tax on salary income and remits this tax to the government. Banks usually also withhold tax on interest payments on fixed deposits. However, if there are other sources of income on which no TDS has been deducted or if the tax deducted is not sufficient to cover the tax liability on the income, the tax liability needs to be discharged (if more than 10,000) as advance tax.
Let us understand the calculation of advance tax with the help of an example:
Nikita, a salaried professional, earns taxable salary income 30 lakhs and interest income 5 lakh, during the financial year 2021-22. Nikita’s employer deducted TDS 7 lakh on salary and bank deducted. tax of 50,000 on interest income. He is also eligible for Chapter VI-A deduction of 1.5 lakh.
The calculation of advance tax is as follows:
Description Amount (in Rs.)
Salary Income – 30 million
Income from other sources – 5 lakh
Gross Total Income – 35 lakhs
Deduct: Deduction under Chapter VI-A of the Act (1,50,000)
Total income after deduction – 33.5 lakh
Tax on total income {(including cess) (a)}— 8.5 lakh
Deduct: TDS deducted by the employer (b) – 7 lakh
Less: TDS deducted by the bank (c) – 50,000
Advance Tax Payable (ABC) – 1 Lac
In the above case, Nikita is liable to pay advance tax 1 lakh, which is payable in 4 installments as given below:
15% of advance tax is payable on or before 15th June – 15,030
45% of advance tax is payable on or before 15th September – 45,090
75% of advance tax payable on or before 15th December – 75,150
On or before March 15, entire 1 lakh to pay tax
It is interesting to note that any tax paid till 31st March will be treated as advance tax. Advance tax can be paid both online and offline using Tax Payment Challan (Challan No. 280). Once advance tax is paid, it will appear in Form 26AS within 3-4 working days, which can be reported in income tax return while filing ITR.
If a person fails to pay the advance tax liability or misses any of the installments on or before the specified due dates or there is a shortfall in payment, 3% per quarter for the first 3 quarters on the amount due and 1% interest will be charged. for the last quarter. A person shall also be liable to pay additional interest at the rate of 1% per month on shortfall of advance tax from April (after the end of the financial year), if the advance tax paid by such person is less than 90% of the total tax payable.
In some cases, advance tax is not applicable, such as in the case of a resident senior citizen (a person of 60 years of age or above) who does not have any income from business/profession. Further, since it is not practically possible to estimate income from capital gains and dividend income in advance, in such cases, if any such income arises after the due date of any installment, the tax on such income shall be computed. The remaining installments of advance tax which are due will be paid.
As the due date for payment of the last installment of advance for the financial year 2021-22, i.e. 15th March 2022 is fast approaching, it is recommended that you assess your advance tax liability and pay on time, even if The earlier installments have been paid. are defaulted to avoid further interest effect.
,Rama Karmakar, Tax Partner – People Advisory Services at EY India.)
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