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What Is Advance Tax?

What is Advance Tax & How to Calculate it? - ABC of Money

Every individual has to pay taxes if they fall under the specified income tax slab. Many turn to tax-savings instruments such as NPS, term insurance plans, PPF, SSY, ELSS, ULIP plans, etc. to get some relief from the tax liability. But have you ever heard of advance tax? If you haven’t, let’s understand advance tax payment today and learn how to calculate it.

So, What Is Advance Tax Payment?

Advance tax payment is paying your tax liabilities applicable to the income earned for the particular financial year beforehand. In simple terms, instead of paying your taxes all at once during the year-end, you pay it in four instalments. But which factor decides the applicability of advance tax payment? If your tax liability is equal to or more than INR 10,000 for the year, you must pay advance tax. Such a system helps the government have a smooth flow of income and enables you to pay the taxes in parts. Section 211 of the Income Tax Act specifies the proportion of taxes to be paid and the due dates. Go through the table given below to learn how you can pay the advance tax:

Advance Tax Payment Due Dates

Advance Tax Due DatePercentage Payable
By June 15Not less than 15% of the tax liability
By September 15Not less than 45% of the tax liability
By December 15Not less than 75% of the tax liability
By March 15100% of the tax liability

Who Should Make Advance Tax Payment?

Here are some categories of people or organisations who need to pay advance tax:

  • Salaried taxpayers, freelancers, & professionals: If you are a salaried individual, a freelancer or a professional, you must make an advance tax payment. The total tax liability should be equal to or more than INR 10,000 for the financial year. However, senior citizens above the age of 60 years are exempt from paying advance tax if they do not own a business.
  • Presumptive income for professionals: Individuals such as doctors, consultants, lawyers, architects, etc. with an independent profession come under the presumptive tax scheme of Section 44ADA. Thus, such professionals must make their advance tax payment in one instalment before or on March 15. But the tax liability can also be paid in a lump sum by March 31.
  • Presumptive income for businesses: Taxpayers opting for the presumptive tax scheme of Section 44AD, must pay their tax liability in advance on or before March 15 in one instalment. However, they can also make a lump sum payment of their taxes by March 31. 

How to Calculate Advance Tax?

To understand how much advance tax you need to pay, follow the steps given below:

  • Step 1: As a taxpaying individual, you need to calculate your earnings for the particular financial year as advance tax is determined based on estimated income. So, consider income from various sources such as interest earned, capital gains, professional salary, rent, etc.
  • Step 2: Estimate the gross taxable income for the year by adding both your professional salary and income from other sources. This total sum can cause a change in your applicable tax slab, so it is recommended to check it thoroughly.
  • Step 3: Now, you can calculate the tax liability as per the latest applicable tax slab.
  • Step 4: Deduct the TDS (Tax Deducted at Source) that shall be subtracted or has been deducted already based on various earnings.
  • Step 5: If your tax liability after deducting TDS is more than or equal to INR 10,000, you must make an advance tax payment as specified by the income tax department.   

So, now that you know what advance tax is and how to calculate it, ensure to check if it applies to you. In case you find the calculations complex, it is recommended to use the income tax calculator available online for easier estimations. You need to simply input information in the income tax calculator. So, keep your investment details ready.