There are different types of tax payments including advance tax, self-assessment tax, tax on regular assessments, TDS, TCS, etc. A lack of clear understanding of the types might create confusion in the minds of taxpayers which eventually results in tax payments under the wrong head. The most common confusion arises while making payments for Advance Tax and Self-Assessment Tax. It is important to know the purpose of each advance tax payment and self-assessment tax payment as the taxpayer has to select a particular type at the time of paying taxes.
Advance Tax
Advance Tax is the payment of taxes in instalments during the financial year when a taxpayer is earning the income the reason it is also called ‘Pay As You Earn’ tax. The concept aims at reducing the burden of one-shot payment of taxes at the end of the year. Every taxpayer, whose tax liability exceeds INR 10,000 needs to pay advance tax on a quarterly basis. In case of non-payment, interest under sections 234C and 234B might be levied.
The payment of advance tax can be made online on the E-filing Portal as well as offline at the bank counter. The taxpayer needs to keep in mind the selection of the correct Assessment Year and code 100 (Advance Tax) while making the payment.
Example
Prashant runs a small trading business and his approximate tax liability is INR 45,000. Since his total tax liability exceeds INR 10,000, he needs to pay advance tax on an instalment basis. Prashant will have to pay advance tax before 31st March of FY to avoid the interest penalty.
Self Assessment Tax
Self Assessment Tax is the tax liability assessed by the taxpayer on his total income after the financial year ends. If there is any outstanding tax liability after adjusting advance tax and TDS, then it needs to be paid under the self-assessment tax head at the time of filing the income tax return. Non-payment of tax can lead to levy of interest under section 234A. Also filing the ITR without payment of tax can lead to the ITR becoming invalid or defective raising further penalties.
Similar to advance tax, payment of self-assessment tax also can be made online on the E-filing portal or offline at the bank counter. The code for payment is 300 (Self-Assessment Tax) which needs to be taken care of along with the Assessment year.
Example
Esha is a housewife and she also teaches school kids in her spare time. She calculated her tax liability at INR 7,000. Esha has to pay this self-assessment tax of INR 7,000 before filing her tax return.
Difference
| Advance Tax | Self Assessment Tax |
| Advance tax is payable only if the tax liability exceeds INR 10,000. | Self Assessment tax is payable whenever there is an outstanding tax liability. |
| The tax payment can be made throughout the year during the financial year. | The tax payment has to be made after the financial year ends at the time of ITR filing. |
| The code for payment is 100. | The code for payment is 300. |
| Non-payment attracts interest under sections 234C and 234B. | Non-payment of tax attracts interest under section 234A. |
FAQs
If the taxpayer doesn’t pay self-assessment tax, he will face an error while filing an Income Tax Return and interest will be levied.
There are two ways to pay self-assessment tax:
– Online payment using a Net banking facility or
– Deposit in a bank with self-assessment tax challan
As mentioned above, if the taxpayer fails to pay advance tax or makes a late payment of advance tax, they will have to pay penal interest. Under section 234C, interest for default in payment of advance tax instalment is levied at 1% simple interest per month or part of a month.
Hey @Shweta_Saini
Advance tax is a ‘Pay as you earn’ tax, so it is required to be paid during the financial year in four different instalments in case your Taxable Liability is more than INR 10,000 for the financial year which stands true for you.
The due dates for advance tax installments are:
If you are eligible to pay advanced tax but have not paid advance tax, the penalty will be applicable u/s 234B and 234C.
Let us know if you have any further questions!
Hi Team, I had assumed that I will be able to pay advanced tax before March because I thought I could go for presumptive tax filing. But now it looks like I cannot opt for a presumptive taxation scheme. So does it mean that I did not pay the advanced quarterly tax that I was supposed to pay?
If yes, what is the penalty in every case or are there some exceptions to avoid this interest penalty?
Thanks in advance!
Hey @riya_gupta
You will be charged an interest penalty under section 234C for the delay/non-payment of advance tax during the year @1% per month on the shortfall amount. Additionally, under Section 234B a penalty interest is imposed on the taxpayers in case the advance tax payment is less than 90% of assessed tax liability during the year.
You can avoid interest u/s 234B by paying at least 90% of your assessed tax liability by March 15, 2021.
Hope this helps!
Hey @TeamQuicko
I have LTCG of more than 7 lakhs from the equity for this year. Is there a way to reduce my tax liability? Also, do I have to pay the tax in advance? If I fail to do so, what will be the penalty/interest percentage I have to pay during my tax filing in 2020?
Hey @ViraajAhuja47, you can set off against non-speculative business loss like F&O for the current year. Long-term capital losses for the previous as well as the current year. Yes, you are required to pay advance tax in case your tax liability is more than INR 10,000 for the FY. The penalties for non-payment of advance tax are:
Non-payment of Advance Tax u/s 234B 3: Interest at 1% in case the taxpayer fails to pay 90% of the tax liability in the same FY
Delay in Payment of Advance Tax u/s 234C 1: if there is a delay in tax payment than interest @ 1% is applicable.
Hello @S_P
Tax paid on or before 31/03/2021 will be considered as advance tax for FY 2020-21. So a trader can determine the profits between 15th March to 31st March and pay the tax on 31st March, there will be no interest levied.
Hope this helps!
Hi @TEst_Netflix,
Tax audit is applicable when:
You can use this tool to determine if tax audit is applicable to you:
It is always a good practice to file your ITR and report all your financial transactions to avoid notice from the Income Tax Department. Especially after the SEBI and CBDT’s data partnership. If your total income is below the basic exemption limit, you won’t have any tax liability.
Do I have to pay Advance Tax if the TDS for the year is sufficient to cover tax liabliltiy?
Does Dividend on equity shares attract separate Advance Tax or is it just another source of income?
Hi @vivek25,
You are liable to pay advance tax if your total outstanding tax liability for the financial year after TDS is above INR 10,000.
To calculate your advance tax liability you need to add your estimated income for the financial year from all sources including - Salary, House Property, Capital Gains, Business & Profession and other sources.
Next, subtract all eligible deductions, expenses, and Tax Credit available to you.
Now, if your outstanding tax liability is above INR 10,000, you need to pay advance tax to avoid penalty u/s 234B and 234C.
Hope this answers your query
You can also use the advance tax calculator to know your advance tax liability under the old and new tax regime
https://tools.quicko.com/advance-tax-calculator/
Hi
When I pay the advance tax through the ZERODHA-QUICKO platform, does it get saved/stored? For example I have paid for Q1. so when I have to pay for Q2, will this be automatically calculated?
Thanks