#FinancialBytes: What is advance tax and who should file it?
Income tax accounts for a significant part of the government's revenue, and it is the responsibility of taxpayers to pay the required tax on the income they earned during a year on time. There are various ways in which income tax liability is paid, and one of them is the advance tax. Here's everything to know about advance tax and who should pay it.
Income tax that is required to be paid in installments during the financial year instead of paying a lump sum amount at the end of the year is called the advance tax. It is also known as the "pay as you earn" scheme. The advance tax is required to be paid in the same year in which the income was received.
Salaried individuals, freelancers, and businesses are required to pay advance tax if their income tax liability is Rs. 10,000 or more in a financial year. It's payable on the total income of a year earned through different sources, including salary, business, rent, fixed deposits, etc. It applies to all taxpayers; however, senior citizens who don't run any business are exempt from advance tax.
Coming to businesses, taxpayers who have opted for the presumptive taxation scheme under Section 44ADA of the Income Tax Act are required to pay their entire advance tax in one installment before March 15 each year. They can also pay all of their taxes due by March 31. Independent professionals like doctors, lawyers, architects, etc. also come under the presumptive scheme under Section 44ADA.
Paying advance tax is quite advantageous as taxpayers don't need to worry about tax payments at the last minute. The advance tax system also prevents people from defaulting on their tax payments. It also streamlines the tax collection process.
One can pay advance tax through tax payment challans at bank branches authorized by the Income Tax Department. Some of the authorized banks include the Reserve Bank of India, State Bank of India, ICICI Bank, HDFC Bank, and Punjab National Bank, among others. Alternatively, one can also pay advance tax online through the Income Tax portal or the National Securities Depository Limited (NSDL) portal.