Advance tax is payable by every person whose net tax liability for the financial year is ₹10,000 or more. This includes every person, be it salaried individual, professional, business owner, firm, company, etc. However, a resident senior citizen (i.e., an individual of the age of 60 years or above during the relevant financial year) not having any income from business or profession is not liable to pay advance tax.
Income for the year and the tax liability thereon is estimated and then a specified percentage of the tax liability is paid at every due date during the year.
In case of default in payment of advance tax on the due date interest shall be levied u/s 234B and 234C, as applicable. Interest u/s 234B is payable when advance tax paid is less than 90% of the tax due. Interest u/s 234C is payable for late payment of advance tax.
For salaried individuals whose tax is deducted at source, there is no need for advance tax payment unless they have some other sources of income such as capital gains, interest income, rental income, etc.
For example, Kavita earns income from salary of ₹8 lakh and her employer has deducted the necessary TDS (tax deducted at source). She sells shares worth ₹5 lakh on 30 June 2021 and earns short-term capital gains of ₹2.5 lakh.
Once, the capital gain arose, it should be considered for the payment of advance tax on or before the next due date i.e., in this case, advance tax on capital gains should be paid for 15 September, 15 December, and 15 March due dates.
Kavita’s tax liability on short-term capital gains of ₹2.5 lakh is ₹39,000 (@15% plus cess). If Kavita has not paid any advance tax until now, she can pay the total tax due of ₹39,000 on or before 31 March and avoid the interest u/s 234B.
However, interest u/s 234C for late payment of advance tax shall still be payable as she has delayed in payment of advance tax.
The net tax liability after considering all deductions, exemptions under the Income Tax Act, and credits to the extent of TDS, tax collected at source (TCS), minimum alternate tax (MAT) utilization are to be considered for determination of advance tax liability.
For instance, Anita’s income from professional services is ₹12 lakh. She has paid an insurance premium of ₹1.5 lakh. TDS of ₹50,000 has been deducted.
Anita’s total tax liability after considering deduction u/s 80C for insurance premium is ₹1,32,600 of which ₹50,000 TDS has been deducted. Accordingly, Anita’s net tax liability remains to the tune of ₹82,600 and she should pay advance tax at the specified percentage on the respective due dates.
Now, for instance, Akash earns income from a salary of ₹12 lakh and his employer has deducted the necessary TDS. Akash earns interest on fixed deposits ₹25,000. Tax on interest income @ 30% plus cess is ₹7,800. Akash believes that he need not pay advance tax on interest income as the net tax liability is less than ₹10,000. In this case, Akash’s belief is correct.
Now, for instance, Samrat is a non-resident Indian earning rental income of ₹15 lakhs from house property in India. Hence, his tax liability for FY 2021-22 is estimated at ₹1,32,600. Samrat attained the age of 60 years on 31 December 2021. He believes that he is not liable to pay advance tax as he is a senior citizen and does not have any income from business or profession. This belief of Samrat is not correct as he is a non-resident Indian and so he will not be exempted from payment of advance tax. This benefit is only available to a resident senior citizen not having income from business or profession.
As we near the end of this financial year, if you have earned any long term / short term capital gains and want to save tax on the same, you can consider booking capital losses that may be arising due to the current market situation to be set off against the existing capital gains.
Accordingly, there will be no tax liability on capital gains and no question of advance tax liability. It is pertinent to note that long-term capital loss can be set off against long-term capital gains only. Short-term capital loss may be set off against long-term/ short-term capital gains.
Nitesh Buddhadev is founder at Nimit Consultancy.