As the deadline for filing advance tax approaches on March 15, Nithin Kamath, co-founder and CEO of Zerodha, shares valuable insights to help traders steer clear of potential notices and penalties.
Advance tax, often overlooked by traders accustomed to annual tax practices, entails paying taxes in instalments rather than in a lump sum. Kamath emphasizes the significance of understanding one’s tax liability, particularly for individuals with estimated tax dues of Rs 10,000 or more, primarily arising from capital gains.
What is Advance Tax?
Advance tax, also known as earn tax, requires taxpayers to make four instalment payments within specified deadlines set by the income tax department. These payments are obligatory for businesses, salaried employees, and freelancers alike.
For the financial year 2023-24, taxpayers are required to:
- Pay 15 percent of their advance tax by June 15
- Pay 45 percent of advance tax (minus any tax already paid) by September 15
- Pay 75 percent of advance tax (excluding previous payments) by December 15
- Pay the remaining or 100 percent of advance tax by March 15.
Understanding Taxable Income:
Kamath underscores that profits derived from Futures and Options (F&O) trading and intraday trading constitute business income for traders. According to Section 208 of the Income Tax Act, individuals with an estimated tax liability exceeding Rs 10,000 are obligated to pay advance tax.
How to Pay Advance Tax:
Taxpayers have the option to pay advance tax through offline or online channels. Offline payments can be made via over-the-counter options such as RTGS/NEFT at bank branches. Alternatively, online payments can be facilitated through the e-filing portal, where individuals can select the e-Pay option under Quick Links.
Consequences of Non-Payment:
Failure to pay advance tax by March 31 incurs an interest penalty of 1 percent on the unpaid amount. To avoid such penalties, Kamath advises traders to adhere to the prescribed deadlines and fulfil their tax obligations promptly.
In a bid to facilitate taxpayers, the Income Tax department has introduced a feature on the e-filing portal allowing corrections to online challans for ITR within 30 days, enabling adjustments to assessment year, major head, and minor head.
