What is Advance Tax and how to calculate and pay Advance Tax?
What is Advance Tax?
Advance Tax is part payment of your tax liability before the end of the financial year. It is also called pay as you earn scheme where the income tax should be paid in the year in which the income is received.
Who is required to pay it?
Every person whose tax liability for a financial year exceeds Rs. 10,000 is required to pay the advance tax on installment basis. Please note that to calculate it, income from all the heads are to be added.
Whether a salaried person has to pay advance tax or not?
In case of a salaried person, the tax on salary is calculated by the employer. He is responsible to deduct the tax (TDS) from your salary income and deposit the same to the government. So you don’t have to worry about paying it.
However, if a salaried person is having income other than salary (for eg. rental income from house property or interest from fixed deposits etc.) and if it is more than Rs. 50,000 than he has to pay advance tax. This is very crucial because it is very common for salaried people to have alternate income sources and as a result they would become liable to pay it.
How to determine Advance tax liability for professionals or proprietary businesses?
Usually in case of professionals or businesses, they have to pay it. One of the reason is that the TDS which is deducted by their customers/clients while making payments, is not enough to meet the total tax liability.
Here is how to calculate the Advance Tax:
Step one: Estimate your income from business or profession. Add all the incomes from on going projects or assignments whose fees are already determined. Also add the incomes which are expected on the basis of ongoing interactions with clients/customers.
Step two: Subtract the expenses. You are allowed to deduct the expenses which are directly related to your business or profession. Rent, electricity, legal and professional fees, books, fuel expenses, salary of employees, depreciation etc. are some of the expenses which are allowed to be deducted from the income
Step three: Add incomes from remaining sources like house property, capital gains, income from other sources etc. Then calculate the tax liability on the total income and deduct the TDS which has already been deducted from your income.
Step four: If the resulting tax liability is more than Rs. 10,000 then you are required to pay advance tax on installment basis as per the following schedule:
Due date of installment Amount payable by individuals Amount payable by non individuals (Companies)
On or before 15th June – Not less than 15% of the advance tax liability
On or before 15th September Not less than 30% of the advance tax liability Not less than 45% of the advance tax liability
On or before 15th December Not less than 60% of the advance tax liability Not less than 75% of the advance tax liability
On or before 15th March 100% of the advance tax liability 100% of the advance tax liability
How to pay Advance Tax:
Select CHALLAN NO./ITNS 280
Fill in mandatory details
Select type of payment as (100) ADVANCE TAX
Choose the bank from drop down and proceed
Enter your net-banking login details, fill in the tax amount and processed
You can download the tax payment counterfoil at the end of the successful transaction
What if I fail to pay the tax installments?
Interest under section 234B is to be paid in case of following two situations:
If advance tax has not been paid even though the taxpayer is liable to to pay it or,
Where the tax paid is less than 90% of the assessed tax*.
* Assessed tax = (Total tax liability – TDS/TCS)
Interest under section 234C is to be paid in case If you fail to pay or short pay the individual Advance Tax Installments (i.e deferment of advance tax).