What is advance tax and how do I know if I should pay it?
Advance tax is the mechanism of paying income tax during the relevant financial year itself in which one earns the income. One is obligated to pay tax in advance where estimated the liability (after credit for tax deducted at source or TDS) exceeds Rs 10,000. An individual is required to pay the advance tax in three instalments, as follows:
To determine whether you have the obligation to pay the advance tax or not, you first need to estimate your income from all sources and the TDS on such income. Then calculate the tax due and reduce the TDS. If the net results in tax due exceeding Rs 10,000, you will be required to pay in advance. You will need to do such a calculation before September 15 and thereafter before the next due dates of payment of advance tax, namely, December 15 and March 15 of the relevant year.
Non-payment of advance tax liability attracts mandatory levy of penal interest as well. Salaried taxpayers have the option to report to their employers the details of their non-employment income and the additional taxes to be deducted from their salary. In such a case, the employer can deduct the additional taxes and they are saved from the efforts of depositing the advance tax on their own.
Is it advantageous to invest in the name of my three-year son to save on taxes?
From an individual tax perspective, all income which arises or accrues to the minor shall be clubbed in the income of his/her parent, unless the income is derived by the minor from manual work or from an activity involving his/her talent. Income is added to whichever parent's income (that is, mother or father) falls under the highest tax bracket.
However, an exemption of Rs 1,500 is allowed to such parent in respect of each minor child's income so clubbed. One may consider investing in Public Provident Fund or other tax-free instruments (like equity-oriented mutual funds) in the name of child, as in such cases the income on investment is exempt and that also helps to accumulate funds in the name of the child for his or her studies/marriage and so on.
Advance tax is the mechanism of paying income tax during the relevant financial year itself in which one earns the income. One is obligated to pay tax in advance where estimated the liability (after credit for tax deducted at source or TDS) exceeds Rs 10,000. An individual is required to pay the advance tax in three instalments, as follows:
- 30 per cent of the annual advance tax liability before September 15 of the relevant financial year
- 60 per cent of the annual advance tax liability before December 15 of the relevant financial year
- 100 per cent of the annual advance tax liability before March 15 of the relevant financial year
To determine whether you have the obligation to pay the advance tax or not, you first need to estimate your income from all sources and the TDS on such income. Then calculate the tax due and reduce the TDS. If the net results in tax due exceeding Rs 10,000, you will be required to pay in advance. You will need to do such a calculation before September 15 and thereafter before the next due dates of payment of advance tax, namely, December 15 and March 15 of the relevant year.
Non-payment of advance tax liability attracts mandatory levy of penal interest as well. Salaried taxpayers have the option to report to their employers the details of their non-employment income and the additional taxes to be deducted from their salary. In such a case, the employer can deduct the additional taxes and they are saved from the efforts of depositing the advance tax on their own.
Is it advantageous to invest in the name of my three-year son to save on taxes?
From an individual tax perspective, all income which arises or accrues to the minor shall be clubbed in the income of his/her parent, unless the income is derived by the minor from manual work or from an activity involving his/her talent. Income is added to whichever parent's income (that is, mother or father) falls under the highest tax bracket.
However, an exemption of Rs 1,500 is allowed to such parent in respect of each minor child's income so clubbed. One may consider investing in Public Provident Fund or other tax-free instruments (like equity-oriented mutual funds) in the name of child, as in such cases the income on investment is exempt and that also helps to accumulate funds in the name of the child for his or her studies/marriage and so on.
The views expressed are expert's own. Send your queries to yourmoney@bsmail.in
Today, Kuldip Kumar, executive director - tax & regulatory practice at PwC, answers your questions
Today, Kuldip Kumar, executive director - tax & regulatory practice at PwC, answers your questions