Pay tax in advance for peace of mind

If you think that the taxman would come knocking at your door only next July for the current year’s tax, think again. This is because though your employer would deduct income tax on your salary every month, you need to make sure you have met your advance tax requirements in case you have multiple sources of income. In common parlance, the term ‘advance tax’ would refer to taxes to be paid by an individual in anticipation of his tax liability for the financial year in question.
 

When does the liability arise?
The liability to pay advance tax arises when the amount of tax payable by an individual during a particular financial year is `10,000 or more. Hence, if an individual has sources of income — other than the one on which tax would be deducted at source — he will have to first estimate the taxable value of such income and calculate the tax thereon at the rates in force for the financial year.
For example, an individual could have income from properties he has given on rent, capital gains from sale of assets, or interest from various bank accounts and bank deposits. If he expects that the tax liability on such sources, either individually or cumulatively, would exceed `10,000, he would have to pay advance tax.

Due dates
For the financial year 2011-12 — assessment year 2012-13 — advance tax is payable as per the following instalments: 30% of advance tax by September 15, 2011; 60% by December 15, 2011 and 100% by March 15, 2012. Furthermore, any amount paid by way of advance tax on or before March 31, 2012, will also be treated as advance tax paid during the financial year.

What if I miss an instalment?
If you have missed the September 15 instalment, or paid less than 30% of the tax due, fret not! You could still pay 60% of advance tax by December 15. 

However, you will also be liable to pay simple interest at 1% per month for the months of default — that is, for three months from September to December.

But if the income in question is capital gains, then the advance tax will have to be paid only in such instalments in which the income arises.

What if no advance tax is paid during a financial year?
If you have failed to pay any advance tax during a financial year, or, as of April 1 2012, paid less than 90%, you will again be liable to pay a simple interest every month or for part of the month at the rate of 1% from April 1, 2012, till the time of payment of such a shortfall.

How do you pay?
The relevant challan for payment of advance tax is ITNS 280, which can be filled and submitted, along with the tax amount, at any bank accepting tax payments. The more convenient way would be of online payment with any bank accepting e-payments.
To conclude, if you expect to have various sources of income, it is advisable to estimate the taxable value and pay advance tax. 
 
The writer is a senior tax associate with KPMG and can be contacted at stkumar@kpmg.com