Important Keyword: Advance Tax, Self-Assessment Tax.
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Difference between Advance Tax and Self-Assessment Tax
Understanding different types of tax payments can often lead to confusion among taxpayers. Two commonly misunderstood types are Advance Tax and Self-Assessment Tax. Each serves a distinct purpose, and it’s crucial for taxpayers to grasp these differences to ensure correct tax compliance.
It is paid periodically throughout the year based on estimated income. It helps taxpayers avoid a lump-sum payment at year-end and ensures a steady contribution towards their annual tax liability. On the other hand, Self-Assessment Tax is paid when a taxpayer assesses and pays the tax due after the financial year ends, taking into account actual income and deductions.
Misunderstanding these distinctions can lead to incorrect categorization of tax payments, potentially affecting compliance and financial planning. Therefore, taxpayers must be clear on when to pay Advance Tax versus Self-Assessment Tax to avoid penalties or interest charges. Clarity in these matters not only simplifies tax filing but also ensures a smoother financial management process throughout the year.
Advance Tax
It’s also known as ‘Pay As You Earn’ tax, allows taxpayers to pay their taxes in instalments throughout the financial year as they earn income. This concept prevents the burden of a large, one-time tax payment at the end of the year. If a taxpayer’s tax liability exceeds INR 10,000, they are required to pay advance tax quarterly.
For instance, consider Prashant, who operates a small trading business with an estimated tax liability of INR 45,000. Due to this amount exceeding INR 10,000, Prashant must pay advance tax in instalments before the 31st of March to avoid interest penalties. This payment can be made conveniently online via the E-filing Portal or offline at a bank counter. It’s essential for taxpayers to correctly select the Assessment Year and code 100 (Advance Tax) while making the payment to ensure accurate tax compliance.
Self-Assessment Tax
Self-Assessment Tax refers to the tax liability that a taxpayer calculates on their total income after the financial year concludes. It becomes necessary when there is an outstanding tax liability after adjusting for Advance Tax and TDS (Tax Deducted at Source). This tax must be paid when filing the income tax return. Failure to pay can result in interest charges under section 234A. Moreover, filing the Income Tax Return (ITR) without clearing the tax dues can invalidate the return or lead to penalties.
For example, consider Esha, a housewife who also tutors school children in her spare time. After calculating her tax liability to be INR 7,000, Esha is required to pay this amount as self-assessment tax before filing her tax return.
Similar to Advance Tax, payment of self-assessment tax can be done conveniently online through the E-filing portal or offline at a bank counter. It is crucial to use the correct code, which is 300 (Self-Assessment Tax), and ensure the Assessment Year is correctly selected when making the payment.
Difference
| Advance Tax | Self Assessment Tax |
| It 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. |
Read More: Section 234B: Interest for Non-Payment of Advance Tax
Web Stories: Section 234B: Interest for Non-Payment of Advance Tax
Official Income Tax Return filing website: https://incometaxindia.gov.in/
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