Understanding Advance Tax & How to calculate it?

Income Tax^* payment is an important aspect and should be a regular financial practice for every earning individual. By paying income tax, we contribute to the social welfare activities and infrastructure developments planned in the country. The Government of India has provided the essential details and an online platform for executing the tax payment processes at your convenience. 

Taxpayers in India can pay Income Tax^* to the Government of India in two ways. 

1. At the financial year-end, you can file the return and pay the tax dues.

2. Estimate and calculate the tax liability based on your income, deductions, and investments in advance and start paying it throughout the financial year. As the tax is paid in advance, it is referred to as Advance Tax.

Who should pay advance tax^*?

According to the regulations provided by the Income Tax Act, if the tax^* liability in a financial year exceeds ₹10,000, you have to pay advance tax under Section 208.  

• If you are a salaried individual, you don’t have to pay advance tax. This is primarily because your employer levies it as Tax^* Deducted at Source (TDS) payments based on your income, investment declaration and expenditures and produces the details to the government. 

• If you have any other sources of income as a salaried person, people in business, or any other professional such as a lawyer, architect, you have to pay advance tax. 

• You also have to pay the advance tax if you accrue capital gains or win a lottery amount and have a huge tax liability.

• Senior citizens who do not have a business need not pay advance tax^*.

How to calculate advance tax^*?

Before calculating the advance tax, take time to understand the different provisions of the Income Tax Act and incorporate them correctly. An individual can easily calculate the advance tax based on his income, expenses, deductions and exemptions by following these steps:

1. Consider your gross income from your profession and estimate it correctly.

2. Work on all the essential expenses and subtract them from the gross income. 

3. Add any additional sources of income such as returns from rented property, interests from fixed deposits, etc., and derive at the total gross income.

4. Consider the deductions, for example, premiums paid towards life insurance, ELSS, PPF, tax-saver FDs, etc., qualify for tax deductions under this Section.

5. Subtract the deductions from total gross income. 

6. Calculate the tax^* payable based on the slab rates and derive the value.

7. Add education cess, which is 4% of the tax payable amount.

8. Subtract the TDS amount.
   
   

You have now derived the amount for tax payable in advance. With the advance tax calculator, you can feed in the details and get the advance tax payable in a single click.

 

How to pay advance tax^*?

You can pay advance tax online in four instalments.
 

Due Date (On or Before)	Advance Tax Payable (% of advance tax) less tax already paid
15th June	15
15th September	45
15th December	75
15th March	100

Once you pay the first, second, and third instalments and recognize that you are liable to pay more, you can always make the changes. You can revise the amount you have to pay in the last instalment and pay it at once.

 

Penalty for not paying advance tax^*

If you are found guilty of paying less than the total liability in the first and second instalment, then you are liable to pay interest on the amount defaulted. It is calculated at 1% simple interest per month for the next three months. On the other hand, if you are found to pay less than the liable amount on the last instalment, then 1% simple interest on the defaulted amount will have to be paid every month until the dues are cleared. 

If you have paid an amount higher than the advance tax, you will receive a refund of the excess amount paid. If the exceeded amount is 10% over your liability, you will be given 6% interest on the exceeded amount.

 

How to save advance tax^*?

The Income Tax Act, 1961 provides a variety of methods to save tax^* in India. Life insurance policies can provide tax^* benefits. The premiums paid to qualify for tax deductions under Section 80C of the Income Tax Act, 1961. The returns are also exempt under Section 10 (10D) in some options. Tata AIA life insurance tax^* benefits are detailed out. One the viable options for a life insurance that can be availed is Tata AIA life insurance ULIPs that help you combine life cover and market-linked wealth creating in a single plan.

Investments made in ELSS, PPF, etc., donations to social causes, etc., qualify for tax deductions. Also, allowances such as house rent allowance, transport allowance, child education allowance, etc., can be exempted from income tax calculation. Use the income tax calculator for getting the accurate value.

 

Conclusion

Advance tax is mandatory for people having different sources of income and huge tax liability. It is our responsibility to consider these factors, produce the right calculations, and start paying the advance taxes appropriately. You can always seek expert guidance and get the exact estimates. Technological developments have made online tax^* payment facilities very much convenient. If you feel income from different sources is important for your financial security, considering the same and paying Income Tax is also a priority!

L&C/Advt/2021/Oct/1868