Advance tax: What it is, how to calculate it, and how to pay advance tax online

Businesses, salaried people, and the self-employed have to pay advance tax. For salaried people, the employer deducts TDS and pays the Government. Businesses and self-employed have to pay advance tax on their own. Here’s how.

Advance tax All you need to know

What is advance tax?

As the name suggests, advance tax is an income tax payment that needs to be made in advance based on one’s estimated income for the financial year. Advance tax is also known as the ‘pay as you earn’ tax. It has to be paid in four instalments as per the dates specified by the Income Tax Department rather than a single lump sum payment at the end of the financial year. 

You must pay the advance tax in the same financial year in which the income is earned. Any person who earns an income has to mandatorily pay advance tax. This includes salaried individuals, business persons, self-employed, etc. Thanks to these advance tax payments, the Government is able to collect revenues in an orderly manner throughout the financial year. 

In the case of salaried individuals, the employer deducts the Tax Deducted at Source (TDS) and passes it on to the Government on behalf of the individual. Businesses and self-employed people have to calculate their advance tax and make the payment. While doing the calculation, they can discount the TDS that has already been deducted by the person who made the payment to them.

When filing income tax returns, if the final tax liability is more than the advance tax paid, the difference will have to be paid. If an individual has paid more advance tax than due, they can claim a refund at the time of filing their income tax return.

Related: How Advance Tax Can Help You Stay On Track With Tax Payments

Who is liable for advance tax payment?

As per Section 208 of the Income Tax Act, every person whose estimated tax liability for the financial year is Rs 10,000 or more has to pay advance tax.

Advance tax does not apply to resident senior citizens (age 60 and above) who do not have income chargeable under the head ‘Profits and gains of business or profession’. So, a resident senior citizen declaring income under Section 44AD (computing profits and gains of business on a presumptive basis) or Section 44ADA (computing profits and gains of profession on a presumptive basis) does not need to pay advance tax.

Advance income tax payment

Advance tax needs to be paid as follows:

Advance income tax payment

A person who declares profits and gains under Section 44AD or 44ADA has to pay the whole advance tax amount for the entire financial year on or before 15th March.

How to calculate advance tax?

An individual can take the following steps to calculate the advance tax:

  1. Add all the incomes under various heads and arrive at total gross income
  2. Apply deductions, if any, and calculate the total taxable income
  3. Calculate the tax on income
  4. Deduct rebate under Section 87A, if any
  5. Add the 4% Health and Education Cess and arrive at tax liability before TDS
  6. Deduct the TDS paid, if any, and arrive at the final tax liability
  7. Pay the advance tax every quarter on or before the Government-specified dates
  8. Make adjustments, if any, to the quarterly amount to be paid in the subsequent quarters based on changes in the income.

You can use the advance tax calculator on the Income Tax website to calculate your advance tax.

Advance Tax Calculator

If you don’t pay your advance tax on time, you will have to pay an interest penalty at the time of ITR filing.

Also Read: 8 Myths About Tax Filing Debunked

How to pay advance tax?

In the above section, we saw how to calculate the advance tax liability. Now let us understand how to make the payment of advance tax. You can make offline or online payment of advance tax.

a) How to pay advance tax Offline?

You can pay the instalment of advance tax by visiting an authorised bank branch and submitting the duly filled challan No./ITNS 280 along with the payment.

Challan

b) How to pay advance tax Online?

Now, let us understand how to pay advance tax online. You can make an advance tax payment online on the NSDL website. Once the payment is made, you will get a seven-digit BSR code, the date of deposit of the challan, and the challan serial number. You will have to quote these details while filing your IT return.

Also Read: Income Tax Returns: Who Should File Them And When?

Conclusion

The Government uses tax revenues for its regular expenses, welfare schemes, and building infrastructure. Your timely payment of advance tax helps the Government get funds regularly. A part of these tax revenues is used for nation-building activities like airports, railways, seaports, roads, hospitals, security, etc. As an Indian citizen, you can get access to these infrastructure facilities once they are ready. By paying advance tax for building these facilities, you contribute not only to your quality of life but also towards nation-building.

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