Understanding Advance Tax Payment

Advance Tax is a system that requires taxpayers to pay their income tax due in installments before the fiscal year ends. Unlike the traditional practice of paying taxes at the end of the fiscal year, Advance Tax requires taxpayers to make periodic payments based on their expected income throughout the year.

Advance Tax is a proactive method of paying income taxes. It ensures a consistent inflow of revenue to the government, assisting it in properly controlling its expenses. Furthermore, it protects taxpayers from being burdened at the last minute and promotes prudent financial preparation.

Who Is Required to Pay Advance Tax?

Individuals, Hindu Undivided Families (HUFs), partnerships, corporations, and other entities that anticipate a tax due of Rs. 10,000 or more in a fiscal year are required to pay Advance Tax.

Advantages of Paying Advance Taxes

Prevent Last-Minute Stress

Taxpayers can escape the hassle of organizing a lump sum payment at the end of the year by paying in installments.

Financial Discipline

Advance Tax encourages taxpayers to practice disciplined financial management by requiring them to forecast their income and arrange their payments accordingly.

Interest Savings

Taxpayers are obligated to pay interest under Sections 234B and 234C of the Income Tax Act in the event of non-payment or underpayment. Paying advance tax on time helps to prevent interest costs.

Avoid Penalties

Paying Advance Tax on time allows you to avoid penalties, which can be extremely severe.

Advance Tax Calculation and Payment

Calculating Advance Tax Payment

• Estimate your entire projected income for the year.
• Estimated deductions and exemptions should be reduced.
• To the remaining income, apply the applicable tax rates.
• Divide the total tax liability into installments according to the due dates.

Paying Advance Tax Online

• Visit the official website of the Income Tax Department.
• Choose “Advance Tax” and enter the required information.
• Select a payment method: net banking, debit card, credit card, or NEFT.
• Receive the challan, which will include a unique Challan Identification Number (CIN) for future reference.

Offline Advance Tax Payment

Taxpayers can also make advance tax payments at recognized banks using physical challans.

Important Due Dates for AY 2024-25 / FY 2023-24

For Individuals and Corporate Taxpayers:

• 15th June 2023: 15% of estimated tax liability
• 15th September 2023: 45% of estimated tax liability
• 15th December 2023: 75% of estimated tax liability
• 15th March 2024: 100% of estimated tax liability

For Taxpayers under Presumptive Taxation Scheme:

• 15th March 2024: 100% of estimated tax liability

Penalties and Important Points

Penalties for Non-payment

• Section 234B: 1% monthly interest on the overdue tax amount.

• Section 234C: 1% interest per month for failure to make installment payments.

Important Points

• Advance Tax is levied on all sorts of income, including salaries, capital gains, and business profits.
• You are excused from paying Advance Tax if your tax liability is less than Rs. 1,000 after TDS.
• The new tax site features an easy-to-use interface for making advance tax payments.

FAQs

Conclusion

Every taxpayer is responsible for making advance tax payments. To avoid penalties and financial stress, stay informed, arrange your funds sensibly, and make your Advance Tax payments on time. Make sure your tax advisor keeps you up to date on estimated taxes if any. Not paying the right advance tax results in a huge amount of interest therefore always prioritize your compliance. Contact TAX VIC if you want support and consulting services to plan and save your taxes. Tax Vic is helping individuals and small businesses by looking after their compliance matters in India.

Need Professional Guidance: info@taxvic.com
TAXVIC

The post Advance Tax Payment Due date, Applicability and Calculation appeared first on TAX VIC.

Advance Tax is the income tax payable if your tax liability is more than Rs10,000 in a financial year. It should be paid in the year in which the income is received. A minimum of 15% of tax liability is expected to be paid either on the 15th of June or before. 45% of it is expected by the 15th of September, whereas at least 75% must be paid by the 15th of December. Subsequently, the entire advance tax liability should be covered by the 15th of March.

Who should File it?

If you are a salaried employee, you are not required to pay advance tax as your employer deducts it at source, known as TDS (tax deducted at source). Advance tax is applicable when an individual has sources of income other than his salary.

Advance Tax due Date & Amount

For Self-employed individuals, freelancers, Companies 

For businesses opting for 44AD and specified professionals/individuals opting for 44ADA, there is no need of paying advance tax quarterly. 100% of advance tax liability is paid by 15^th march.

How to Calculate Advance Tax?

1. Estimate the total income earned by you other than your salary in a financial year.
2. Subtract all expenses from your income, including medical insurance premiums, phone costs, travel expenses, etc.
3. Now, add other income that you received apart from your salary. Such as interest from FDs, house rent, lottery earnings, etc.
4. If the amount of tax calculated is more than 10,000, then you are liable to pay advance tax.

5. If you follow 44AD, 44ADA then calculation is different

What if you pay advance tax less/more than required for a financial year?

If you deposit less than 90% of the total tax liability, interest will be levied under Section 234B. You need to pay interest at the rate of 1% per month. Whereas if you pay more than what’s needed, you will receive the excess amount as a refund. The income Tax department will pay you interest at the rate of 6% per annum on the excess amount if the amount is more than 10% of the tax liability.

What if you miss the due dates of paying Advance Tax?

There is a penalty for failing to pay advance tax by due dates. The penalty will be levied on the unpaid amount of advance tax at 1% simple interest per month or part of the month under Section 234B. If the taxpayer doesn’t make the full payment, interest is levied on the shortfall amount. And in case of a shortfall in payment, interest will be levied for a period of 3 months under Section 234C.

If you are not sure about your tax liability, do not have extra time to sit and calculate your liabilities, or have any kind of questions related to your tax planning, book an appointment with a Tax Vic expert, just drop us an email at info@taxvic.com and we will get back to you as fast as we can.

Contact Us: TAXVIC

The post What is Advance Tax & How to Calculate Advance Tax? appeared first on TAX VIC.