What is Advance Tax & how to calculate it

The Income Tax Act of 1961, which governs all income tax rules in India, contains a total of 23 chapters, 14 schedules, and 298 sections. Although it’s not possible for a common taxpayer to remember all of these, one must understand the necessary laws to avoid any legal or financial troubles. One such law is the payment of advance tax.

As per Section 208 of the Income Tax Act, all taxpayers whose estimated tax liability for a financial year exceeds Rs 10,000, after adjusting the Tax Deducted at Source (TDS) and Tax Collected at Source (TCS), are liable to pay advance tax. These include all salaried employees, freelancers, professionals, business persons, etc.

However, senior citizens, i.e. those above the age of 60 who do not have any income from a business or profession, are exempt from paying advance income tax.

Read on to learn more about advance tax to ensure you are safe from all legal and financial penalties.

What is advance tax?
 

As the name suggests, advance tax is a part of the income tax that is paid in advance to the government. Advance tax payments have to be made in instalments as per the due dates set by the Income Tax Department. This tax is also known as earning tax, as it is paid when one earns an income.

Also read - Importance of tax planning in building long-term wealth and maximise savings

How to calculate advance tax?

Advance tax is calculated in the following manner -

Income tax on the estimated taxable income – Tax rebate under Section 87A + Applicable surcharge on the income tax (if any) + Education Cess – TDS

For example, suppose the total tax liability of a taxpayer in a financial year is Rs 42,100 after deducting the tax rebate available under Section 87A, and they have already paid a TDS of Rs 20,000. Now, their advance tax would be Rs 42,100 + Rs 1,684 education cess – Rs 20,000, i.e. Rs 23,784.

What are the due dates for advance tax payments?
 

All taxpayers (other than those who have opted for the presumptive taxation scheme) can pay their advance tax in instalments by the following due dates -

Those who have opted for the presumptive taxation scheme under Section 44AD are required to pay 100% of their advance tax in a single instalment by 15 March.

How to pay advance tax online?
 

Below are the steps to make an advance tax payment online via the income tax portal:

Step 1 – Visit the e-filing portal

Step 2 – Navigate to the “e-pay tax” option

Step 3 – Enter your PAN and mobile number

Step 4 – Verify using a One Time Password

Step 5 – Select the appropriate income tax category

Step 6 – Add the relevant assessment year and select “Advance tax payment” under the “Type of payment” head

Step 7 – Further, add tax break-up details

Step 8 – Click on the Pay Now button after selecting the payment mode

Step 9 – Select “I agree to the terms and conditions and click on the “Submit” button

Step 10 – Make the advance tax payment using a credit card, debit card, UPI, NEFT, or any other available payment gateway

Also read - Understanding belated, revised and updated Income Tax Returns

​​To conclude
 

The concept of advance tax helps the government rationalise income tax payments. Non-payment of advance tax attracts penalties under Sections 234B and 234C of the Income Tax Act.

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