The Government of India levies income tax on all income other than agricultural income (subject to certain provisions of the Income Tax Act, 1961). Income tax is levied on each person (who is subject to tax) based on various provisions of the Income Tax Act, 1961. The Government of India has several mechanisms through which it collects income tax from taxpayers. The methods can be summarised as follows:
- Advance Tax
- Self-Assessment Tax
- Tax Deducted at Source (TDS)
- Tax Collected at Source (TCS)
Advance tax: “Pay as you earn”
Advance tax means income tax should be paid in advance instead of a lump sum payment at year end. Under this scheme, every assessee is required to pay tax in the financial year, preceding the assessment year, on an estimated basis. Advance tax receipts help the government to get a constant flow of income throughout the year so that expenses can be incurred conveniently.
Who should pay Advance Tax?
- If your total tax liability is 10,000 or more in a financial year you have to pay advance tax.
- Advance tax applies to all tax payers: salaried, freelancers, or businessmen.
- Senior citizens, who are 60 years or older, and do not run a business, are exempt from paying advance tax.
- If you are a salaried employee, you need not pay advance tax as your employer deducts tax at source (TDS). Advance tax is applicable when an individual has sources of income other than his salary.
- Advance tax is payable by a salaried person on their income from sources other than salary. For instance, if an assessee earns income via capital gains on shares, interest on fixed deposits, winnings from lottery or races, capital gains on house property besides his regular business/salaried income then after adjusting for expenses or losses he needs to pay advance tax.
How should you pay Advance Tax?
|Due Date||Advance Tax Instalment Amount|
|15th June||At least 15% of Tax on total income for the year.|
|15th September||At least 45% of Tax on total income for the year less advance tax already paid.|
|15th December||At least 75% of Tax on total income for the year less advance tax already paid.|
|15th March||100% of Tax on total income for the year less advance tax already paid.|
Any default in payment of advance tax attracts interest under section 234B and any deferment of advance tax attracts interest under section 234C.
How to pay income tax?
To deposit Advance Tax, Self Assessment tax and Regular Assessment Tax an individual has to use challan ITNS-280. It can be paid both through internet (online or e-payment) and at designated branches of banks empaneled with the Income Tax Department (offline)
How is interest calculated on advance tax?
- If Advance Tax is not paid in full for installments falling due on 15th June, 15th September and 15th December, interest at the rate of 1% on the short amount for 3 months is to be payable u/s 234 C.
- If Advance Tax is not paid in full for installments falling due on 15th March, interest at the rate of 1% on the short amount for 1 month is to be paid. If the payment of the last instalment in March is delayed by even a day, interest is to be paid on the entire instalment amount.
- If you do not pay advance tax at all or if the aggregate paid by March 31 is less than 90 per cent of the total tax payable, you will have to pay an interest of 1 per cent per month on the deficit amount from April 1 of the following year till the date you file your return u/s 234 B.
- If tax is paid after due date for filing of return, an interest of 1 per cent per month is payable on the deficit amount from the due date of filing of return till the date of payment of deficit u/s 234 A.
Self Assessment tax
As the name suggests, self assessment tax is the tax which is computed by the taxpayer on his own and the deposited with the Government. Assessees are required to calculate their final liability after deducting TDS and advance tax paid during the year. This final liability is known as self assessment tax, and has to be deposited with the Government, before filing the income tax return.
Calculation of self-assessment tax is explained below:
|Compute tax payable on total income as per Income tax slab rates||A|
|(+) Interest under section 234A/ 234B/ 234C||B|
|(-) Relief under section 90/90A/91||C|
|(-)MAT Credit under section 115JAA||D|
|(-) Advance tax||F|
|Self-assessment tax to be paid||A+B-C-D-E-F|
The self assessment tax to be paid shall be accompanied by Challan No. / ITNS 280. It can be paid online or at any of the authorised banks.
Tax deducted at source
Tax Deducted at Source (TDS), is an indirect way of tax collection by Indian tax authorities. TDS is collected as a means to keep a stable revenue source for the government throughout the year, while desisting people from avoiding taxes.
TDS is based on the principle of ‘pay as and when you earn’. Tax is deducted when making payments through cash, credit or cheque, which is then deposited with the central agencies.
What is TDS?
- The concept of TDS requires the person on whom responsibility has been cast, to deduct tax at the appropriate rates, from payments of specific nature which are being made to a specified recipient.
- The deducted sum is required to be deposited to the credit of the Central Government. The recipient from whose income tax has been deducted at source gets the credit of the amount deducted, in his personal assessment on the basis of the certificate issued by the deductor.
- TDS is calculated and levied on the basis of a threshold limit, which is the maximum level of income after which TDS will be deducted from your future income/payments.
Due Dates for TDS:
Due date for Deposit of TDS:
TDS has to be deposited to the credit of Central Government, by 7th of the following month except for the tax deducted in the month of March, which can be deposited upto 30th April.
Due date for filing of TDS Return:
Quarterly returns have to be furnished within 30 days after the end of every quarter i.e 31st July, 31st Oct, 31st Jan and 31st May (for Quarter 4).
Penalty: Non –payment of TDS attracts penal interest under various provisions of Income Tax act, 1961.
Tax collected at source
This tax is similar to TDS, except that it is levied on the sale of specific items as listed in Sec 206C of the Income tax act, 1961.
The seller collects tax form the buyer, at specified rates and has to deposit the amount to credit of Central Government, on 7th of the following months, except for the tax collected in the month of March, which can be deposited upto 30th April.
The buyer from whom the Tax has been collected, gets credit of the amount in his personal assessment on the basis of certificate issued by the tax collector.