As the name suggests, it refers to paying a part of your yearly taxes in advance. Advance tax is the income tax payable if your tax liability exceeds Rs 10,000 in a financial year. Advance tax should be paid in the year in which the income is received. Hence, it is also known as the 'pay-as-you-earn' scheme.
Advance tax is applicable when an individual has sources of income other than his/her salary. For instance, if one is earning through capital gains, interest on investments, lottery, house property or business, the concept becomes relevant.
Any rebate due fetches you an interest of 0.5 percent every month, or, six percent annually, as in the case of an income tax refund. However, if you don't pay the advance tax on time, you'll be charged one percent every month, or, 12 percent a year.
If you are salaried, you need not pay advance tax as your employer deducts tax at source (TDS). However, you still need to file it if you have other sources of income, increasing your liability to more than Rs 10,000. Professionals (self-employed) and businessmen will have to pay taxes in advance as, given their business income, the liability can be huge. The same goes for companies and corporates.
Advance tax or self-assessment taxes have to be paid on the 15th of September, December, and March, in installments of 30 percent, 30 percent, and 40 percent, respectively, for non-corporates. Corporates need to pay it on the 15th of June, September, December, and March. While employers deduct TDS on salaries, advance tax is paid on income that has not been subjected to TDS.
If you fail to pay your advance tax or the amount you pay is less than the mandated 30% of the total liability by the first deadline (September 25), you will be liable to pay interest on the amount, which comes to 1% simple interest per month on the defaulted amount for three months.
The same interest penalty would apply if you fail to pay the amount by the second deadline (December 15). Failing to pay the third and last installment (March 25) would mean paying 1% simple interest on the defaulted amount for every month until the tax is fully paid.
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