How to Calculate Advance Tax and Stay Ahead of Deadlines?
Topics: Advance Tax, Tax Return Advance
Introduction
We are all aware that paying our taxes is an end-of-the-year activity, but it is not as easy as that. You may also need to do it quarterly if your tax liability is high. And that is when advance tax comes into play.
If your total tax liability in a financial year is 10,000 or more, including TDS, you will be required to pay tax in advance (i.e., before the end of the financial year). The rule is not restricted to businesses or freelancers but also to salaried persons whose income is supplemented by other income, like rent or capital gains.
We should know how to compute advance tax, and we should make sure that we pay the advance tax on time.
What Is Advance Tax?
Advance tax is simply the income tax paid in advance as the income is received, instead of waiting until the end of the year to pay the whole amount of tax. That is why it is the so-called ‘pay-as-you-earn’ system.
This system assists the government in collecting tax revenue in a balanced manner throughout the year and also helps the taxpayers avoid paying a large amount at the end.
Now, Who Needs to Pay Advance Tax?
You will have to pay advance tax when:
- You have paid a total tax (including TDS) of Rs. 10,000 or more in a financial year
- You are a freelancer, business owner, or a salaried individual with additional income sources such as rent, interest, capital gains, etc.
- Even those who are paid salaries might be required to pay in case TDS is not able to cover all the income.
Exemption: Senior citizens (60+) who do not receive an income through business or profession are exempt from paying advance tax
Let us now understand how to calculate the Advance Tax.
Advance tax calculation is the process of calculating your total income for the year and calculating your tax liability depending on the tax slabs that apply to you.
Step by Step Advance Tax Calculation
Step 1: Compute your gross annual income.
Include earnings like salary, business /professional income, rental income, capital gains, and interests etc.
Step 2: Deduction of allowable deductions.
Like the Section 80c, 80D, 24(b) (home loan interest), etc.
Step 3: Calculate taxable income on a cumulative basis
Step 4: Take an estimate of tax liability based on the applicable slab rates of income tax
Step 5: Tax Deducted at Source (TDS) deduction
In the case of the tax being previously paid by your employer or any other person on your account, deduct the sum from your account.
Step 6: When the amount of balance tax payable is more than 10000, then the advance tax payment is compulsory.
Formula:
Advance Tax = estimated Total Tax Liability -TDS (as the case may be)
Additionally, here are the deadlines for Advance Tax payments.
It is extremely important to pay on time to avoid paying interest under sections 234B and 234C of the Income Tax Act, 1961. Here is the comparison of deadlines to submit the advance payment of tax to individuals and corporations:
Due Date | Advance Tax Payable |
|---|---|
15th June | At least 15% of the total tax liability |
15th September | At least 45% (cumulative) |
15th December | At least 75% (cumulative) |
15th March | 100% of the total advance tax |
In case of taxpayers who are taxed under the presumptive tax scheme (Section 44AD or 44ADA), the full amount of advance tax can be paid on or before 15th March in a lump sum manner.
Furthermore, let us understand how to pay the Advance Tax online.
You can easily pay your advance tax, and this can be done by using the Income Tax e-Payment portal or your net banking account.
Steps to Pay Advance Tax Online:
- Visit the site: https://www.incometax.gov.in
- Check out e-Pay Tax
- Select Challan 280 to pay advance tax
- Enter the details: PAN, assessment year, address, bank, and amount
- Make payment using net banking or debit card
- Make a printout of the receipt of the challan as a record
Here are some benefits of paying the Advance Tax.
- Avoid Interest Charges: Paying on time will help you avoid paying the interest according to Sections 234B (non-payment) and 234C (late payment).
- Cash Flow Management Enhancement: Payment of tax in four installments will enable the management of money.
- Boosts Compliance: On-time tax payment improves your tax history and keeps away an audit.
- Eases the burden of End of Year: No end-of-year large payments and rush to get the money.
Conclusion
When you know about advance tax calculations and keep track of the due dates, not only will you avoid the penalties, but also develop a habit of managing your finances and being ahead of the tax payment deadlines. Use the internet payment system, monitor your income and deductions, and maintain an active position all year.
Don’t make tax season a stressful moment; plan, pay on time, and remain compliant!
RESOURCES
Bonus FAQs:
Q1. What is a tax return advance and how does it relate to advance tax?
A tax return advance refers to the early payment of income tax based on estimated income. It ensures taxpayers meet their liability before the financial year ends.
Q2. Who is required to file a tax return advance in India?
Anyone whose tax liability exceeds ₹10,000 in a year (after TDS) must pay a tax return advance, including salaried individuals with additional income.
Q3. How do I calculate my tax return advance amount?
To calculate tax return advance, estimate your total income, subtract deductions, apply the tax slab, deduct TDS, and pay the remaining liability in installments.
Q4. What are the due dates for paying tax return advance?
Installments for tax return advance are due on June 15 (15%), Sept 15 (45%), Dec 15 (75%), and March 15 (100%) of the total estimated tax.
Q5. Is tax return advance applicable to salaried employees?
Yes, salaried individuals must pay tax return advance if their additional income (like rent or capital gains) causes their tax liability to exceed ₹10,000.
Q6. Are senior citizens required to file a tax return advance?
Senior citizens above 60 years, with no business income, are exempt from filing a tax return advance under Indian tax laws.
Q7. How do freelancers handle tax return advance payments?
Freelancers must calculate projected income, apply deductions, estimate tax liability, and pay tax return advance in four installments.
Q8. What happens if I miss a tax return advance deadline?
Failing to pay tax return advance on time may attract interest under Sections 234B and 234C of the Income Tax Act, increasing your tax burden.
Q9. Can I pay my tax return advance online?
Yes, you can pay tax return advance through the Income Tax e-filing portal using Challan 280 via net banking or debit card.
Q10. What is Challan 280 in relation to tax return advance?
Challan 280 is the official form used to pay your tax return advance online. It captures PAN, assessment year, bank details, and tax amount.
Q11. Is tax return advance mandatory for businesses under presumptive taxation?
Yes. Those under Section 44AD or 44ADA must pay the entire tax return advance in one lump sum by March 15.
Q12. Can TDS be adjusted against tax return advance?
Yes, TDS deducted by employers or banks can be subtracted from the total tax liability before calculating your tax return advance amount.
Q13. Are there any benefits of paying tax return advance early?
Paying tax return advance early helps avoid interest, improves cash flow, spreads out your tax burden, and boosts compliance.
Q14. How do I track previous tax return advance payments?
You can check your payment history of tax return advance via the AIS/TIS section or Form 26AS on the Income Tax portal.
Q15. Is a refund possible if I overpay my tax return advance?
Yes, any excess tax return advance paid will be refunded after filing your income tax return, subject to processing and approval by the IT department.
Q16. Do NRIs have to pay tax return advance in India?
Yes, NRIs must pay advance tax if their total Indian-sourced income creates a liability exceeding ₹10,000, unless TDS already covers it.
Q17. Can house property income trigger the need for advance tax?
Yes, rental income not covered by TDS can result in a tax liability requiring advance tax payments during the financial year.
Q18. Are capital gains included while computing advance tax?
Absolutely. Short- or long-term capital gains from shares, mutual funds, or property must be factored into your advance tax calculation.
Q19. Is agricultural income exempt from advance tax requirements?
Agricultural income is usually exempt, but it may be used to determine tax rates on non-agricultural income, indirectly affecting your advance tax amount.
Q20. Can I revise my advance tax estimate midway through the year?
Yes, you can reassess your income and adjust the upcoming advance tax installments accordingly to avoid overpaying or underpaying.
Q21. How is interest under Section 234B calculated?
Interest under Section 234B is 1% per month for defaulting on advance tax payment where less than 90% of the tax is paid by March 31.
Q22. What is the penalty under Section 234C for advance tax delay?
Section 234C imposes interest if you miss scheduled advance tax installments or pay less than the required amount on due dates.
Q23. Do salaried people with only TDS need to worry about advance tax?
Usually not. But if they have other income (like FD interest), they may still be liable to pay advance tax if TDS doesn’t cover it.
Q24. Is there any special provision for startups regarding advance tax?
Startups must comply like any other taxpayer. However, tax holidays or exemptions under certain sections may reduce advance tax liability.
Q25. How do I claim a refund if I’ve paid excess advance tax?
Any excess advance tax can be claimed as a refund by filing your ITR. Interest under Section 244A may also be applicable
Penned by Deewakshi Dwivedi
Edited by Ragi Gilani, Research Analyst
For any feedback mail us at info@eveconsultancy.in
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