What is Advance Tax & How is it Calculated?

What is Advance Tax & How is it Calculated?





Calculation of advance tax liability

We will explain the calculation by way of an example. Aashu is a freelancer earning income from the profession of interior decoration. For the FY 2019-20, Aashu estimates his annual gross receipts at Rs 20,00,000. Aashu estimates his expenses at Rs 12,00,000. Aashu has deposited Rs 40,000 in the PPF account. Aashu has also paid Rs 25,000 towards LIC premium. Further, Aashu has paid Rs 12,000 towards the medical insurance premium. The professional receipts of Aashu are subject to TDS. Aashu estimates a TDS of Rs 30,000 on certain professional receipts for the FY 2019-20. Besides professional receipts, Aashu estimates an interest of Rs 10,000 on fixed deposits held by him. Aashu's advance tax liability would be as below:

INCOME ESTIMATION FOR ADVANCE TAXAMOUNT (Rs)AMOUNT (Rs)
   
Income from profession:  
Gross receipts20,00,000 
Less: Expenses12,00,0008,00,000
   
Income from other sources:  
Interest from fixed deposit 10,000
GROSS TOTAL INCOME 8,10,000
Less: Deduction under section 80C  
Contribution to PPF40,000 
LIC premium25,000 
 65,000 
Deduction under section 80D12,00077,000
TOTAL INCOME 7,33,000
   
TAX PAYABLE 59,100
Add: Education cess @ 4% 2,364
  61,464
Less: TDS 30,000
TAX PAYABLE IN ADVANCE 31,464
ADVANCE TAX PAYMENTS 
Due dateAdvance tax payableAmount (Rs)
15th June15% of Advance tax4,700
15th September45% of Advance tax14,100
15th December75% of Advance tax23,600
15th March100% of Advance tax31,400

What is Advance Tax?

Advance tax means income tax should be paid in advance instead of lump sum payment at year-end. It is also known as pay as you earn tax. These payments have to be made in instalments as per due dates provided by the income tax department.

Who should pay Advance Tax?

Salaried, freelancers and businesses– If your total tax liability is Rs 10,000 or more in a financial year you have to pay advance tax. The advance tax applies to all taxpayers, salaried, freelancers, and businesses. Senior citizens, who are 60 years or older, and do not run a business, are exempt from paying advance tax.

Presumptive income for Businesses–The taxpayers who have opted for the presumptive taxation scheme under section 44AD have to pay the whole amount of their advance tax in one instalment on or before 15 March. They also have an option to pay all of their tax dues by 31 March.

Presumptive income for Professionals– Independent professionals such as doctors, lawyers, architects etc. come under the presumptive scheme under section 44ADA. They have to pay the whole of their advance tax liability in one instalment on or before 15 March. They can also pay the entire amount by 31 March.

Read in detail about presumptive taxation here Want a CA to calculate and help pay your advance tax dues?



Due Dates for Payment of Advance Tax

FY 2019-20 & FY 2018-19 for both individual and corporate taxpayers

Due DateAdvance Tax Payable
On or before 15th June15% of advance tax
On or before 15th September45% of advance tax less advance tax already paid
On or before 15th December75% of advance tax less advance tax already paid
On or before 15th March100% of advance tax less advance tax already paid

For taxpayers who have opted for Presumptive Taxation Scheme under section 44AD & 44ADA – Business Income

Due DateAdvance Tax Payable
 On or before 15th March100% of advance tax

Our Tax Experts will calculate your advance tax liability so you can pay your dues on time.


Will I be penalized if I do not pay advance tax?

Non-payment of advance tax will result in a levy of interest under 234B and 234C of the Income-tax Act, 1961.

Can I claim deduction under 80C while estimating income for determining my advance tax?

Yes. You can consider all these deductions while estimating your income for the year for computing your advance tax liability.

Why should advance tax payments be made?

Advance tax payments benefit both the government and the individual/organisation paying it. From the government’s perspective, it provides a continuous flow of income throughout the year. From the individual/organisation’s perspective, it reduces the year-end burden of paying taxes in a lump sum. Non-payment of advance tax could result in the taxpayer being liable to interest under the Income Tax law. Hence, timely payments of advance tax should be made.

How to make an advance income tax payment online?

To make an advance tax payment online, follow the steps given below:

  1. Visit the Tax Information Network of the Income Tax Department of India at https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp
  2. Click on ‘Proceed’ under the CHALLAN NO./ITNS 280 option.
  3. Enter the tax applicable, types of payment, mode of payment, PAN, assessment year and other details mentioned in the challan.
  4. Ensure that once filled in, you double-check all the data that you have entered.
  5. You will then be redirected to the bank’s website to complete the payment.
  6. After completing the payment, you will get a tax receipt on the next screen, on which you can see the payment details. You can see the BSR code and challan serial number on the right side of the challan. Save a copy of this tax receipt for future reference. You will need to enter the BSR code and challan number in your tax return.
For more info visit TAXAJ                                                                                                                                                                           POSTED BY:- ANUJ (TEAM TAXAJ)

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