.gif)
.webp)
.svg)
What is Advance Tax?
It is common knowledge that citizens in India have to pay Income Tax to the government at the end of every financial year as a lump sum amount. This income tax is a percentage of the individual’s total income in a year and if the individual falls in the tax paying category or ‘slab’, then they must pay income tax.However, there is an additional type of income tax known as an Advance Tax, which as the name suggests, is paid well before the end of the year, in advance, so to speak. For this reason it is also called a ‘Pay as you Earn Tax’.Advance Tax is either paid entirely in one go or in installments on due dates as prescribed by the Income Tax Department.
How to Calculate Advance Tax?
There are many Advance Tax Calculators online that you can use to calculate your tax. But it is important to understand the calculation so that you find out if a calculator ended up with the correct result.Let us begin the calculation with an example.
First, determine your total income in a financial year.
- Let us assume that you’re a professional freelancer who earned Rs.20,00,000 through your work.- Suppose your expenses come to Rs. 12,00,000/-- Additionally, you have deposited Rs. 40,000 in a PPF account and paid Rs. 25,000 as a life insurance premium.- Also, you have a health insurance premium of Rs. 12,000/-- Your fixed deposits generated an income of Rs. 10,000- And finally, you estimate that your employers have deducted a total of Rs. 30,000 as TDS before paying you.So when you calculate your total taxable income, you add up all your income, including rents and interest, subtract your expenses, subtract deductions for life insurance, health insurance premiums and PPF, and voila, you end up with the total taxable income. Let us apply this to our example.
| INCOME ESTIMATION FOR ADVANCE TAX | AMOUNT (Rs) | AMOUNT (Rs) | ||
| Income from profession: | ||||
| Gross receipts | 20,00,000 | |||
| Less: Expenses | 12,00,000 | 8,00,000 | ||
| Income from other sources: | ||||
| Interest from fixed deposit | 10,000 | |||
| GROSS TOTAL INCOME | 8,10,000 | |||
| Less: Deduction under section 80C | ||||
| Contribution to PPF | 40,000 | |||
| LIC premium | 25,000 | |||
| 65,000 | ||||
| Deduction under section 80D | 12,000 | 77,000 | ||
| TOTAL INCOME | 7,33,000 | |||
| TAX PAYABLE | 59,100 | |||
| Add: Education cess @ 4% | 2,364 | |||
| 61,464 | ||||
| Less: TDS | 30,000 | |||
| TAX PAYABLE IN ADVANCE | 31,464 |
So, finally, you know that you need to pay an income tax amount of Rs. 31,464/-. So, does this make you liable for Advance Tax? Yes! Since you’re a freelancer and your calculated tax liability is more than Rs. 10,000/- you need to pay Advance Tax.So let’s work out your schedule to pay Advance Tax. Due Dates:
| ADVANCE TAX PAYMENTS | ||
| Due date | Advance tax payable | Amount (Rs) |
| 15th June | 15% of Advance tax | 4,700 |
| 15th September | 45% of Advance tax | 14,100 |
| 15th December | 75% of Advance tax | 23,600 |
| 15th March | 100% of Advance tax | 31,400 |
Conclusion
So, this is the way by which you can calculate and make your Advance Tax Payment . Sure, you can simply use one of the many online calculators to check your advance tax, but our aim is to make you the valuable taxpayer understand how the basic calculation is made. So, the next time you pay your advance tax, make sure to check the match so that you end up with the correct figure.Ready to make the most of your money? Start your tax planning journey now!
DISCLAIMER
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
