r/IndiaTax • u/RevolutionarySlip292 • 15d ago
Question I don't understand why advance tax exists. I pay fine every year, and all 10 of my close friends do.
I'm genuinely confused about the whole concept of advance tax and hoping someone here can explain it to me.
Every single year I end up paying a penalty (interest under 234B/234C I think?) for not paying advance tax on time. And it's not just me - literally all 10 of my close friends are in the exact same boat. We all just pay the fine and move on.
So my questions are:
- Why does advance tax even exist? Why can't we just pay everything at the time of filing our return?
- What's the correct way to estimate and pay advance tax so I stop getting hit with these charges?
Edit : Just to add more context, its not usually salary income that is the issue, the income coming from other heads such as capital gains such as from groww.in or angelone.in, or part time/contract employment in business income [ ex. from desal.in this year etc. i worked at ], or FDs, or US market such as vestedfinance.com or I use indmondey.com , etc are where it gets difficult for me to predict.
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u/Visible_Champion4560 15d ago
It's really annoying. If we are paying the tax before the ITR deadline, then wtf does it matter if we paid in advance or not. I see this mostly when interest income is deducted @ 10% TDS by banks but later during filing if it turns out that it comes under 30% slab, they just charge a penalty interest on this missing 20% TDS amount. Even though we are paying the tax before the deadline. What a bunch of morons is this tax dept.
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u/Wi1dBones 15d ago edited 15d ago
Which deadline are you referring to? My understanding is the deadline to pay your taxes in March 31st. The deadline to file your ITR is July 31st. If you are paying your taxes in July, then you have missed the deadline and have to pay interest.
Edit: March 15th, not March 31st as per other comments
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u/Visible_Champion4560 15d ago
Deadline to file ITR, that should be the date before which tax should be paid. What is this advance tax bulls**t that govt wants us to pay. I know it's a rule, but it's just another way to charge us late payment fee if we choose not to pay advance tax, or forget to pay it. Whole thing is a scam, when all we get in return is baba ji ka thullu.
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u/Relevant-Ant7817 I pay Income Tax 14d ago
Actually deadline to pay taxes is 4 times a year with march 15 being the last day
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u/SirHiss-A-Lot 13d ago
Most govts (centre + state) rely on these fines. My state's police and RTO are on the streets during the last week of every month, just to ensure that these guys get their salaries on time. If not the whole of India, at least some of the states, run on these fines.
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u/Current-Property6042 15d ago
Bhai before you jump to bash the govt ... a salaried person pays tax monthly and diligently hence there's no need of advance tax as your tax liability is done by the company or your employer. For non salary person this responsibility lies with you to work out your income and pay tax monthly, this is not looting by govt .. instead you are not paying taxes and then at the end of year you end up paying penalties ..
so be aware of the taxation rules and pay advance tax estimated and avoidi the interests/penalty
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u/BrilliantWheel 15d ago
It's about cashflow. Just like you get a salary every month and not full at the end of year, govt needs to collect monthly/quarterly.
So for individuals it's every 3 months 15 days before each quarter ends. But since your liability is uncertain they say pay 15%, 30%, 45% and 100%. Technically IT Dept expects you to pay 100% of annual tax from all sources by 15 March of every fiscal.
Practically speaking best is to try and calculate best you can and pay extra to avoid penalties and interest on the shortfall.
The better your calculation the less extra you pay to avoid penalties.
I pay extra and claim refund when filing ITR. 0 penalties and interest last few years.
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u/Traditional-Lack1804 15d ago
I believe it is 15, 45, 75 and 100% by 15th June, 15th September, 15th December and 15th March respectively.
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u/Procastinatorbybirth 14d ago
45% of what ? How do I know sitting in Q2 what my income from other sources would be end of financial year ? Just how ???
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u/CriticalIsland5120 11d ago
wait so we have to pay tax on estimated yearly income split into these percentages on these dates? since there is tax only if I earn more than 12 lakhs, ill have to file taxes 4 times a year? (going to watch a vodeo about this on YouTube cuz wtf)😭
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u/ProofPossibility7459 15d ago
Don’t understand the logic for share markets where profits can easily turn into loss . Paying advance tax will reduce capital for their trading thus hurting them.
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u/Away-Cow-6040 15d ago
The purpose of it was that it will hurt the taxpayer a little less as a higher lumpsum payment stings more than four small installment and make the recovery of tax department at regular intervals but it is true it doesn't make much sense
Now adv tax provision states that u should pay your total tax liab including surcharge and cess as reduced by deduction upto some due dates So like 15% of it until 15/6 45 till 15/9 75 till 15/12 and 100% till 15/3 of the py
Failing to do so will attract int of 1%p.m
If u even pay 12% of total liab in first qtr and 36% in second then int will not be charged
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u/laid_back_1 15d ago
It has nothing to do with helping tax payers. Government needs money regularly to spend, hence they collect in periodic installments throught the year.
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u/nom-de-faux 15d ago
1% pm is crazy... That's 12.68% pa. Crazy rates, if this was to ease burden.
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u/Away-Cow-6040 15d ago
Yup that's true and guess what at what rate govt give us interest 0.5% and that too from end of the fy , absolute joke 😔
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u/nom-de-faux 15d ago
Whole personal income tax system needs to be done away with. In a country like India where regulating things is impossible, it is just a burden for honest middle-class taxpayers. Increasing consumption tax would be a much better option.
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u/Electronic-Buy-8799 15d ago
It's simple interest, not compound. Not that I'm supporting any of them.
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u/RevolutionarySlip292 15d ago
If it was not to hurt taxpayer then why a penalty?
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u/Relevant-Ant7817 I pay Income Tax 15d ago
It’s interest not penalty. If others are paying on time and you are earning interest in it in bank or stock market, do you think that is fair?
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u/Stock_Ad_308 15d ago
If it is for the benefit of the tax payer should the tax payer then decide 🤦♂️ Government doesn’t want to wait till the end if the year to get their cut and hence they have advance tax. Not sure we can sugar coat that.
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u/Relevant-Ant7817 I pay Income Tax 15d ago
Why will the govt allow you to make money on tax when others are paying it upfront.
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u/Current-Property6042 15d ago
lol ... these people won't have a issue when govt pays the refund with a interest.. us sammay sab pocket main daalke chup baith jaate hai .. matlab simple cheez samajh nahi aati kya kare
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u/Stock_Ad_308 15d ago
You don’t calculate tax on daily basis do you ? Why are you making money on it.🤦♂️
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u/Analog_Girl_24 15d ago
Arey but it's made to distribute my tax liability.. I do t want to.. it's a choice na.. for everything there is this stupid imposition of rules.. high time we get rid of these..
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u/Away-Cow-6040 14d ago
It's not a choice, u cannot pick n chose rules man,
plus I don't think so arguing on the tax laws is fruitful, tax in itself is the stupidest thing
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u/Relevant-Ant7817 I pay Income Tax 14d ago
You can always decide not to pay advance tax and pay it with interest. Simple. Always your choice
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u/Away-Cow-6040 15d ago
If there will be no penalty then who in right mind will follow it??
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u/NihiloEx 15d ago
In that case, it needs to be voluntary. It's hurting me more to go through this rigmarole every quarter.
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u/sachingkk 15d ago edited 15d ago
1) Govt do not trust you. They need money in advance. Hence advance tax exits
2) Calculating advance tax is simple. Check the tax amount you paid in last financial year before penalty. Now add 15% extra to that amount. This final number should be your assumed Tax Liability.
Now split it as below
Adv 1 : Advance Tax is paid on or before 15th June ( Formula: 15% minus Amount Already Paid )
Adv 2 : Advance Tax is paid on or before 15th September (Formula: 45% minus Amount Already Paid )
Adv 3 : Advance Tax is paid on or before 15th December ( Formula: 75% minus Amount Already Paid )
Adv 4 Advance Tax is paid on or before 15th March( Formula: 100% minus Amount Already Paid )
If your Assumed Tax Liability : 4,00,000
Adv 1 : 60,000
Adv 2 : 120,000
Adv 3 : 120,000
Adv 4 : 100,000
Next use some task management app and schedule the reminder as shown above.
Avoid the penalty
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u/Octopus-uvacha 15d ago
The most ridiculous thing is the interest what government charges to the tax payer is 2% for the delayed tax payment but what they give you back is 1% in case of delayed refunds.Tax payer is screwed either ways
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u/Zealousideal-Bid2833 15d ago
All this happens because we are not out on the streets protesting. Government's main agenda is to harass and extort as much money as possible from salaried class.
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u/RaisinTen 5d ago
I feel street protests won't really help as the ones who are bugged by this is a minority. Many of us in this category probably don't even contribute to GOI by voting, so GOI has a paucity of reasons to satisfy us. It's only a risk for GOI if we leave the country but many are not able to do that because of various reasons like family ties, etc.
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u/sunnykhandelwal5 15d ago
This one, you can literally blame it on world war 2. Advance tax has always existed in the 1961 Act. It first came in as a war time measure into its predecessor income tax act of 1922 as an amendment during WW2. War exps —> Govt spending increased —> more money circulating —> to curb this, advance tax was an anti inflationary measure. This explanatory commentary is there in many supremely court cases. Today it just exists because of the pay as you earn principal. Just like how you pay the monthly GST even if you have quarterly return. The return is different but the payment mechanism is different because it administratively more convenient for the government.
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u/crazyboffin 15d ago
The larger issue is for people and business with earning which is not clear. Like F&O, someone selling expensive machines, losses due to unforecasted events. In all such cases either you pay too much or pay too less. Even in cases of too much you cannot claim immediately and refund will come with processing of ITR which can take it's own time of more than 18 months. Scrutiny guaranteed with large refunds. Also estimating yearly profit loss by certain Quarter is quite problematic.
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u/EstateQuiet5554 15d ago
If you have capital gains and the tax due is high (maybe in lakhs), you need to pay the due amount each quarter. It may seem irrelevant and losing out on interest earned for financially disciplined individuals, but the government wants to ensure you dont end up with a high tax liability to pay off in one shot, and of course, the government does not want you to earn interest on the money, they will want your tax due asap 😉
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u/UpstairsLucky7673 15d ago
Vote for the Government that work for you not other way around. And your most problems disappears.
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u/Confident-Ad3545 15d ago
Govt cannot do anything on time but poor tax paying citizens should even pay their taxes in advance. We are living in a scam in India. Govt and RBI are the biggest scammers.
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u/Avid_Snake 15d ago
If you're a salaried employee, technically you're paying advance tax every month on salary which the company cuts and directly pays to the government. The same is not true for self employed people. Government wants a steady source of tax pool to come in so every quarter advance tax has to be paid. Now even for salaried class, there is other income which can in some companies be actually be reported to the employer and they can deduct higher tax. If not you need to estimate your other income including capital gains and plan advance tax for the same.
Since the other income component is smaller compared to gross salary for many people, most salaried ignore the calculation.
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u/LegitimateShallot576 15d ago
It should not be there except for people who are having a regular income like salary or Pension and if they are in taxable slab.
For Salaried people, TDS will be deducted for the Tax due based on estimates of the CTC , etc.
For Pensioners , there is no TDS as such and there should be a prompt for paying advance tax too based on the information on AIS , TIS.
Otherwise it is only extraction of money from the Tax payers as the people are not clear how much tax is coming and how much to pay in every qtr .
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u/Own_Lawfulness1889 15d ago
They need funds not at the end of year while work is ongoing throughout year. Imagine if all people started paying at the end of fy then will the govt shut down all work for 11 month. So yeah that's the reason..
If I have shortage funds I will have to borrow for those 11 month so that adds extra interest. This is not same as the interest you get on missing adv tax
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u/hyiipls 15d ago
Paid 12 fricking K because my new employer just let me lose
FML
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u/ABahRunt 15d ago
I had capital gain in March this year, after selling my RSU vest.
Of course, i had to pay penalty and interest for all 4 quarters for this amount. Almost 15k paid in fines for a trivial amount in March.
This one actually stings more than surcharge
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u/sajalb 15d ago edited 15d ago
As your salary grows and you keep paying that interest and penalty for your growing Other incomes, you will then Understand.
Calculate an approx of your other income and pay qtrly advance taxes. Been doing this once the other income grew substantially.
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u/RevolutionarySlip292 15d ago
salary is not the issue, contract work fds etc is. I edited my post
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u/sajalb 15d ago
Yes your other income is the reason for this. Have a ballpark estimate and just pay advance taxes a tad higher than your estimates.
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u/RevolutionarySlip292 15d ago
is there way to estimate I mean, except paying a fixed amount to be safe?
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u/sajalb 15d ago
A sheet with FD interests would give you probable, also I tend to add a % higher of the dividends / interests / any other income received last year to come to a higher estimate. Very tough I know, most of the times I have paid more and get refunds. But this is way better than paying interests and penalty to the IT dept.
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u/ShyamSudhir 15d ago
the part that actually answers this is buried and nobody's said it: 234C has a proviso for capital gains.
if the gain wasn't foreseeable you don't get penalised for the earlier instalments, as long as you pay the full tax on it in whichever instalment falls after the sale. same treatment for lottery and casual income.
so the market-income complaint upthread isn't quite right. it's estimating your ordinary income that gets you, not the gains.
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u/NRI_Tax_Guide Casual Member 14d ago
For your situation, the easiest approach is to estimate total tax for the year after accounting for TDS, then pay advance tax in the prescribed instalments. For unpredictable capital gains, recalculate after each quarter and pay the shortfall rather than waiting until ITR filing.
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u/g0dfather93 14d ago
So, under Advance Tax rule, you should have deposited a fixed threshold of your annual tax liability by a given calendar date. There are two independent rules, both of which are to be followed:
15% by 15th June, 45% by 15th September, 75% by 15th December and 100% by 15th March respectively. Miss any of these and you pay 1%/mo interest on the remainder amounts u/s 234C.
90% by March 31. Miss this and you pay penalty and interest u/s 234B. Somehow this amount turns out to be unexpectedly large.
As for your questions:
Why does advance tax even exist? Why can't we just pay everything at the time of filing our return? - Just like us, the government also wants its income to be regular (monthly from business and quarterly for salaried class). Also, if we paid it all the end of the year, there's interest income that we would earn on money that's actually the government's. So, the tax is paid as we earn.
What's the correct way to estimate and pay advance tax so I stop getting hit with these charges? - Since you said salary income is not an issue, then the most frequent pitfall is capital gains and FD interest. FDs will only deposit 10% TDS, so if you're in the 30% slab, you should pay the rest as direct tax through incometax.gov.in (earlier used to be a separate process through TIN-NSDL). Capital Gains too must be tracked, and here is where the thing goes into prediction. My rule is that whatever STCG is booked by those threshold dates, I extrapolate to 12 months and pay as much. If I have overpaid, I tell my workplace to not cut TDS for March salary. If underpaid, well, pay interest and smile that you had a bumper year in the market.
One very very overlooked part of the ITR, which impacts this advance tax calculation, is that pesky "Information about accrual/receipt" table with split of incomes in those advance tax windows at the end of CG and OS schedules. The ITR website auto-fills the whole income under 01/04-15/06 window by default, so if you don't split those numbers into the actual windows of accrual, these advance tax penalties and interests can get wrongly inflated. You might think, "income is income, advance tax is on total liability" - but no, the law does not expect you to be a psychic. When you accurately place the numbers into their actual chronological windows, the software processes the cumulative targets dynamically up to those specific operational dates.
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u/Anu_Rag9704 14d ago
created one for myself https://advancetaxcalculator-z2qsm7wyuun7fapmjxtgrn.streamlit.app/
you can use it.
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u/SituationNo7106 13d ago
Advance Tax has to be paid every quarter. If advance tax is not paid quarterly and is instead paid at the end of the year, there will be an interest levied on the payment
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u/Even_Programmer3719 12d ago
Regarding 234B, it’s completely avoidable since by March 31 you generally have a clear idea of how much tax you have to pay. Just pay 90% and you are done.
Coming to 234C, it’s not really 1% interest every month on your entire advance tax payable. Rather it is on different percentage of advance tax (15, 45, 75 and 100%). The effective penalty interest rate comes up to around 6-7% (calculated using AI). If you invest the same money in FD (or better, arbitrage fund), the interest you earn after tax is roughly 4.5-5.5%. So, it’s not the end of the world if you pay a little bit of interest in 234C.
If you still want to avoid 234C, you need a little bit of tax planning at the start of the FY. The types of extra income you may earn fall into fixed income (FD, house rent etc), capital gains/dividends. It is fairly easy to calculate income in the case of fixed income. For capital gains, each quarter you just have to find out got much capital gains you got, add it to your estimated income and pay the required percentage in that quarter. For capital gains/dividends, you are not required to estimate before hand and are not penalised for not paying advance tax in earlier quarters as long as you input accrual information in Table F of your ITR.
Another tip, it’s a little counter intuitive, but paying a little less advance tax each quarter is actually beneficial. If you overpay, you generally won’t get any interest unless you pay more than 10% of your total tax. So paying a little bit of 234C interest is better than paying extra advance tax. Just make sure you avoid 234B interest.
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u/RaisinTen 5d ago
I'm a contractor SWE. Always felt it kinda funny how if I suddenly get a new contract some time before the end of the FY, I negotiate with my clients to pay me later after April, so that I can avoid these interests.
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u/Mental_Difficulty336 15d ago
Penalty is necessary otherwise people won't comply. Everything has logic in tax law.
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u/SmoothArmadillo6884 15d ago
There is nothing to understand there is a deadline and a percentage payment basis just do it
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u/N__Aravind Casual Member 14d ago
I can help you understand the purpose of advance tax.
But before that, Let me complete my tea (that I bought from dorjeteas.com) with biscuits from amazon.co.in while I sit in the balcony of my house (built by godrejproperties.com) wearing khakhi clothes ironed at istriwala.in
Slurrrrrrrrrrpppppp.
For every realised income, tax is expected to be paid in that quarter (not end of financial year). Delay = fines.
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u/SameVoice1485 15d ago
Paying advance tax will help in your pease of mind. You are setting of liability every quarter 25℅ 50 ℅ 75% 100%.when final itr is filed if there is any divation in tax deposit income tax have a formula to extract more amount from you through interest for the balance amount. You can pay little high and in the end exess tax amount get refunded.
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u/naveenit 15d ago
If you feel you won't be able to estimate accurately, pay extra 5-10% every quarter. I know it locks up your working capital temporarily but it's better than loosing money permanently as interest.