How It Works & Why It's Important
Advance tax is a way of paying your tax liability in installments rather than a lump sum at the end of the financial year. This system helps the government receive tax revenue steadily throughout the year and prevents a large tax burden on taxpayers at the end of the fiscal year.
Here’s a detailed look at advance tax specifically for senior citizens, including the process, due dates, and who is liable to pay tax.
Who Needs to Pay Advance Tax?
According to the Income Tax Act, senior citizens (aged 60 years and above) who do not have any income from a business or profession are exempt from paying advance tax.
However, senior citizens with income from sources such as interest, rent, capital gains, or any other income exceeding ₹10,000 in a financial year are required to pay tax.
Calculating Advance Tax Liability
To calculate advance tax liability follow these steps:
- Estimate Your Total Income: Calculate your total income from all sources, including pension, interest income, rental income, capital gains, and other income.
- Deduct Eligible Deductions: Subtract eligible deductions under Section 80C to 80U of the Income Tax Act to get your net taxable income.
- Calculate Advance Tax Payable: Use the applicable tax rates to compute the tax payable on your net taxable income.
- Subtract TDS: Deduct any tax deducted at source (TDS) from your tax payable. The remaining amount is your advance tax liability.
The Income Tax Department has also provided an advance tax calculator tool on their website which will automatically do the advance tax calculation on your behalf once you fill in your information.
Due Dates For Advance Tax Payments
The advance tax payment is made in four installments throughout the financial year:
- 1st Installment: 15% of the total tax liability by June 15
- 2nd Installment: 45% of the total tax liability by September 15
- 3rd Installment: 75% of the total tax liability by December 15
- 4th Installment: 100% of the total tax liability by March 15
How To Pay Advance Tax
You can pay advance tax online through the Income Tax Department’s website. Simply click on 'e-Pay Tax; under Quick Links on the left as shown in the picture below and follow the prompts to pay using net banking or with a debit/credit card.
Alternatively, you can visit designated bank branches and pay using the Challan 280 form.
Penalties for Non-Payment or Late Payment
Failing to pay advance tax or making late payments can attract interest penalties under Sections 234B and 234C of the Income Tax Act. It is therefore crucial to calculate and pay your advance tax accurately and on time to avoid these penalties.
Checking Advance Tax Payment Status
After making the payment, you can check the status of your advance tax paid on the Income Tax Department’s website using your PAN and the Challan Reference Number (CRN). Simply click on the 'Know Tax Payment Status' tab under Quick Links on the left to get started.
The Bottom Line
Advance tax helps in managing your tax liabilities throughout the year, reducing the burden at the end of the financial year.
Senior citizens, like all tax-paying citizens, must be aware of their tax obligations and ensure timely payment of advance tax if applicable in order to avoid penalties.
Proper planning and understanding of the advance tax system can lead to better financial management and peace of mind.
Note: The strategy/ investment instruments in this article are illustrative and for education purposes only. Please consult an investment advisor before taking any action on investments.
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