Payable Advance Tax: How to Calculate it?
When the fiscal year finishes, taxpayers must follow the advance tax rules. The reason for this is so they do not have to pay fines and interest. When people pay their income tax in advance, they pay it in installments. This method helps keep you in line with tax rules and manage your cash flow correctly. This guide will show you how to figure out how much advance tax you owe before March 31st.
What is Advance Tax?
People whose total tax bill is more than ₹10,000 in a financial year have to pay tax IN advance. This group includes companies, workers, and people who get paid a salary.
Importance
Advance tax is a key part of India’s tax system. It helps the country to develop faster. It’s a useful method for both taxpayers and the government, with many benefits that make it easier to handle money and follow the rules.
Taxpayers will benefit from better financial planning and less stress.
- Spread Your Tax Liability
You can pay your tax over the year, making it easier to pay at the end of the accounting year.
- Reduce Stress
Not having to worry about paying a lot of taxes at the last minute makes it less stressful.
- Avoidance of Penalties
Advance tax payment on time prevents interest and penalties that the government charges for unpaid taxes, saving money and avoiding non-compliance with the tax laws.
- Encourages Financial Discipline
Regular Payments: Periodic payments of advance tax make taxpayers cautious about keeping proper financial records and keeping track of their income and expenses.
- Steady Revenue Stream
Predictable Income: Tax is a constant source of income during the year, which helps in the stability of the economy and allows the government to finance all the public services and developmental activities.
- Economic Stability
Timely Funds: It helps in the timely availability of funds to the government. That is crucial for economic stability and for the support of continuous projects.
For the government, it offers a stable source of revenue and aids in economic stability. Through comprehending and taking advantage of the system of taxation, taxpayers can keep their financial burdens in order while assisting the economic development of their country.
Due Dates for Advance Tax Payment
Tax must be paid in four installments during the financial year:
| Due Date | Percentage of Payment |
| June 15 | 15% |
| September 15 | 45% (cumulative) |
| December 15 | 75% (cumulative) |
| March 15 | 100% (cumulative) |
Calculating Advance Tax
To calculate advance tax, follow these steps:
● Estimate Total Income:
Include all the sources of income, like salary, business/professional income, capital gains, rental income, and interest on fixed deposits.
Deduct the allowed expenses and deductions under Chapter VI-A (e.g., Section 80C, 80D) to arrive at taxable income.
● Calculate Tax Liability:
Apply relevant income tax slab rates. Add a surcharge and cess (4%), if any. Deduct TDS/TCS credits and MAT credits to arrive at the net tax payable.
● Calculate Advance Tax Liability:
If the net tax liability is more than ₹10,000, compute the tax payable in installments.
Example of Advance Tax Calculation
Let’s consider an individual with the following income:
| Components | Amount in ₹ |
| Salary Income | 1,000,000 |
| Standard Deduction | 50,000 |
| Net Salary Income | 950,000 |
| Freelance Income | 500,000 |
| Interest from FDs | 20,000 |
| Total Income | 1,470,000 |
Deductions:
- Section 80C= ₹150,000
- Section 80D=₹25,000
- Total Deductions= ₹175,000
Payment of Advance Tax
Tax can be paid online via the NSDL website or through authorized banks using Challan No. 280.
Penalties for Non-Payment
Non-payment of tax within the due date attracts penalties:
- Interest under Section 234C
1% per month or part thereof for delayed payment of installments.
- Interest under Section 234B
Where the tax paid is below 90% of the assessed tax, interest at 1% per month from April 1 of the assessment year is charged.
Get Started with TaxDunia
Advance tax calculation and payment by 31st March is pivotal to escape penalty and compliance with tax regulations. Being aware of the procedure and following the payment timeline, taxpayers can effectively manage their financial expenses and help the government’s revenue cycle. At the end of the financial year, one must check through one’s tax obligation and make payments to ensure no extra costs are imposed. Let TaxDunia help you in solving tax problems so that you can avoid penalties. Get started today for optimum services.
