Salaried individuals can disclose their total income (including the non-salary portion, such as bank interest, rent etc) to their employer, who then accordingly deducts tax at source, each month.If not, they must ensure advance taxes are duly paid as the tax deducted at source by the employer would not cover the entire tax liability. Non-salaried, have to meticulously compute and pay their own advance taxes.
This is how it is done: Estimate the total income during the financial year. Reduce all eligible exemptions and deductions, based on the tax regime you have opted for. Further, reduce the tax deducted at source, or collected at source. Compute your estimated tax. If the amount of tax is more than Rs. 10,000 advance tax obligations apply.
| Due Date | Advance tax payable (% of total tax liability) |
| June 15 | 15% |
| September 15 | 45% |
| December 15 | 75% |
| March 15 | 100% |
| Small taxpayers who have opted for presumptive taxation scheme u/s 44AD (businessmen) and 44ADA (professionals such as doctors, lawyers) can pay their entire advance tax in one instalment by March 15 | |
Small taxpayers who have opted for presumptive taxation scheme u/s 44AD (businessmen) and 44ADA (professionals such as doctors, lawyers) can pay their entire advance tax in one instalment by March 15. Further, senior citizens are not required to pay advance tax, if they do not earn any income from business or profession.
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The first instalment falls due within 75 days from the commencement of the new financial year. Those who do not have a steady salaried income (such as gig workers who have not opted for or are not eligible for presumptive taxation) find it challenging to gauge their income for the entire year at the very onset.
Several individuals who moonlight – hold a job, but take up a small assignment here and there – for experience as well as additional income, tend to not opt for the presumptive tax scheme where 50% of the gross revenue has to be offered to tax.
Capital gains that may arise on future sale of assets also cannot be predicted – this should be covered in the immutably following advance tax instalment.
Sandeep Jhunjhunwala, partner, Nangia Andersen LLP says, “The exponential growth of income opportunities, especially for freelancers in the gig economy and new entrepreneurs, makes it exceedingly challenging to accurately predict annual income during the initial months of the financial year.”
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Interest for a three-month period:
For their default, taxpayers have to bear interest under section 234C of one per cent per month, until the next instalment which falls due after three months. Even if there is an oversight and a default of one day, the interest payment is for the entire three months.
To illustrate: Mr. A ought to have paid advance tax of Rs. 15,000 by June 15. However, he paid only Rs. 5,000. The shortfall is Rs. 10,000. Interest under section 234C will be Rs. 300 (which is @1% for three months).
Jhunjhunwala states: “The challenge is further compounded by the stringent interest penalty structure. Even a one-day delay in any of the first three quarterly instalments results in a substantial 3% interest charge for the delayed quarter. Ideally, a more nuanced approach should be implemented. For example, if the June 15 instalment is paid by July 14, a lower interest rate of perhaps 1% could be applied instead of the punitive 3%. This would provide taxpayers with a small buffer period and alleviate the burden of unforeseen delays.”
Need for increase in threshold limit:
Earlier, the Bombay Chartered Accountants’ Society (BCAS) had in their pre-budget memorandum pointed out that the threshold limit of Rs. 10,000 was last amended by the Finance Act, 2009. Considering inflation, there is a need to increase this limit to a more realistic figure. Further, the requirement to pay advance tax in four instalments (which was only for corporate entities) was introduced for non-corporate taxpayers, by the 2016 budget. The law must be suitably amended to ensure that this requirement is removed for individuals.
Prior to this amendment, the three due dates for payment of advance taxes were: September 15 (30% of the tax liability); December 15 (60% of the tax liability) and March 15 (100% of tax liability).
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“To streamline tax compliance and truly incentivise participation in this evolving economic ecosystem, broader relaxations from advance tax provisions for specific taxpayer categories are warranted. This could include freelancers, whose income is closely tied to project availability and market fluctuations, making income estimation highly improbable.
Additionally, early retirees below the age of 60 years, who often generate income from various sources other than PGBP, could also benefit from such relaxation.” “Further, simplifying the current advance tax framework and potentially deferring advance tax liability for the first two quarters (Q1 and Q2) for individuals and new entrepreneurs merits serious consideration.
This would alleviate the burden of early and potentially inaccurate income estimation, enhance cash flow management for nascent businesses, and ultimately foster a more supportive environment for taxpayers,” suggests Jhunjhunwala.