What is Advance Tax & How to Calculate Advance Tax?

What is Advance Tax & How to Calculate Advance Tax?

How to Calculate Advance Tax

About Advance Tax and How much to Pay?

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 

Due date of installmentAmount payable
On or before June 15At least 15% of the advance tax liability
On or before September 15At least 45% of the advance tax liability
On or before December 15At least 75% of the advance tax liability
On or before March 15100% of the advance tax liability

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 15th 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.