Advance tax is a system in India where taxpayers pay their income tax in installments throughout the year, instead of in one lump sum at the end of the financial year. This helps the government manage its cash flow and ensures that taxpayers fulfill their tax obligations on time.
Who Needs to Pay Advance Tax?
Any individual, Hindu Undivided Family (HUF), firm, or company whose tax liability is ₹10,000 or more in a financial year is required to pay this tax. This includes salaried individuals who may have additional income from investments or business activities.
When to Pay Advance Tax?
This tax is payable in four installments:
- 15% by June 15
- 45% by September 15
- 75% by December 15
- 100% by March 15
These dates might vary slightly based on the assessment year, so it’s crucial to keep track of any announcements from the Income Tax Department.
How is Advance Tax Calculated?
To calculate advance tax, you first need to estimate your total income for the year. From this, you can determine your tax liability using the applicable income tax slabs. Once you have the total tax amount, you can divide it into the required installments based on the due dates.
Example:
Let’s consider a simple example. Suppose Ramesh is a freelancer with the following estimated income for the financial year:
- Gross Income: ₹12,00,000
- Deductions: ₹2,00,000
- Net Taxable Income: ₹10,00,000
According to the current tax slabs, Ramesh’s estimated tax liability would be approximately ₹1,12,500 (including applicable cess).
Now, Ramesh needs to pay advance tax as follows:
- By June 15: 15% of ₹1,12,500 = ₹16,875
- September 15: 45% of ₹1,12,500 = ₹50,625 (cumulative total)
- December 15: 75% of ₹1,12,500 = ₹84,375 (cumulative total)
- March 15: 100% of ₹1,12,500 = ₹1,12,500 (cumulative total)
Ramesh will pay ₹16,875 by June 15, and continue making payments in the following months based on his estimated income.
Conclusion:
Advance tax is an essential part of the tax system in India, helping both taxpayers and the government manage finances effectively. By understanding when and how to pay it, taxpayers can avoid penalties and stay compliant with tax laws. Remember to review your income regularly to ensure accurate payments!
– Ketaki Dandekar(Team Arthology)
Read more about Advance Tax here – https://cleartax.in/s/advance