What’s Advance Tax Fee: Which means and Calculation

When taxpayers’ tax legal responsibility in a monetary yr exceeds a specific amount, they’re required to pay tax upfront quite than wait till the top of the yr. This cost, made in 4 instalments, is named advance tax. On this weblog, we’ll reply what’s advance tax by understanding varied advance tax guidelines and how one can file them on-line in straightforward steps.

What’s Advance Tax?

Let’s start with advance tax that means. Advance tax is a kind of earnings tax you pay beforehand over 4 instalments quite than in lump sum after the top of the monetary yr. Taxpayers should estimate their annual earnings and calculate their anticipated tax legal responsibility upfront. If the entire tax due (after TDS) comes out to be greater than Rs. 10,000, they need to pay a sure proportion as advance tax in 4 instalments – On or earlier than fifteenth June, fifteenth September, fifteenth December, and fifteenth March to keep away from curiosity penalties.

You could be questioning, why taxpayers must pay advance tax as a substitute of simply settling the total quantity whereas submitting their returns on the finish of the yr. The explanation for that is that the federal government needs to make sure they obtain a gentle stream of tax income all year long, just like how salaried workers have TDS deducted month-to-month. For taxpayers who don’t have common TDS deductions, like self-employed people, freelancers, enterprise homeowners, and even salaried workers, the advance tax India construction makes certain taxes are paid often over the yr.

Who Ought to Pay Advance Tax?

Advance tax should be paid if one’s tax legal responsibility exceeds Rs. 10,000 in a monetary yr, minus the TDS (Tax Deducted at Supply) already deducted or anticipated to be deducted. So in case your complete tax legal responsibility after subtracting TDS remains to be greater than Rs. 10,000, it’s important to pay advance tax in instalments to keep away from curiosity penalties. The precise advance tax proportion will depend on the due date introduced by the Revenue Tax Division.

Freelancers, companies and salaried people

If the annual tax legal responsibility is above Rs. 10,000 much less TDS, advance tax should be paid in 4 instalments. It is because whereas salaried people obtain their salaries after relevant TDS deductions, freelancers and companies could not have common TDS on their earnings. 

For instance, a freelancer falling within the 30% advance tax slab could have purchasers who deduct solely 10% TDS on funds. This creates a spot between the precise tax legal responsibility (30%) and the TDS deducted (10%), resulting in tax underpayment. Thus the freelancer is required to pay the remaining tax as advance tax to keep away from any penalties.

Professionals (Presumptive earnings)

Professions similar to legal professionals, medical doctors, and consultants, that’s, these taxpayers who work independently and earn earnings with no fastened wage, are additionally required to estimate their annual earnings and pay advance tax if their complete tax legal responsibility after TDS goes over the Rs. 10,000 restrict. 

Nevertheless, the advance tax slab for particular person professionals choosing the presumptive taxation scheme beneath Part 44ADA is a bit totally different. Such people don’t must pay their advance tax in 4 instalments. Moderately, they will pay their total tax legal responsibility in a single instalment by fifteenth March.

Companies beneath presumptive taxation scheme

If a enterprise has opted for the presumptive taxation scheme beneath Part 44AD, it’s required to pay advance tax if legal responsibility exceeds Rs. 10,000. In contrast to different companies, nevertheless, these beneath presumptive taxation are allowed to pay their total advance tax in a single single instalment by fifteenth March, as a substitute of 4 instalments.

NRIs

If an NRI’s complete tax legal responsibility in India (from any taxable Indian sources like capital features or rental earnings) exceeds Rs. 10,000 after TDS in a monetary yr, they need to pay advance tax.

Senior residents

Particular person taxpayers aged 60 years or above are exempt from paying any advance tax, no matter their complete tax legal responsibility. Nevertheless, senior residents who’ve a enterprise or skilled earnings, must pay advance tax if tax legal responsibility exceeds Rs. 10,000. This may be executed in 4 instalments, or 1 earlier than fifteenth March (beneath the presumptive taxation system).

Advance Tax Slabs and Charges

There isn’t a separate advance tax slab. Taxpayers must estimate their annual earnings and pay a proportion of their complete tax legal responsibility earlier than totally different deadlines all through the monetary yr. Thus, the advance tax charges are merely the identical because the common earnings tax slabs relevant to the taxpayer.

For instance, if the estimated taxable earnings of a person incomes enterprise earnings is Rs. 20 lakh (after subtracting TDS and deductions), they’d fall beneath the 30% tax bracket as per the earnings tax slabs. Let’s assume their tax legal responsibility for the yr beneath the brand new regime can be Rs. 3 lakh. This legal responsibility should be cleared in 4 instalments over the course of the monetary yr.

The advance tax cost schedule is:

• 15% of complete tax legal responsibility by fifteenth June
• 45% by fifteenth September
• 75% by fifteenth December
• 100% by fifteenth March

1. First instalment: 15% of Rs. 3 lakh = Rs. 45,000. This cost is due by fifteenth June.

2. Second instalment: 45% of Rs. 3 lakh = 1,35,000. However since Rs. 45,000 was already paid earlier, we’ll subtract it from this instalment. Thus the second advance tax cost by fifteenth September can be Rs. 90,000.

3. Third instalment: 75% of Rs. 3 lakh = 2,25,000. Once more, for the reason that first and second instalments already lined Rs. 1,35,000, the cost for the third instalment due by fifteenth December can be Rs. 2,25,000 – Rs. 1,35,000 = Rs. 90,000.

4. Fourth instalment: The taxpayer has already paid Rs. 2,25,000 by now, so the remaining tax legal responsibility, that’s, Rs. 3,00,000 – Rs. 2,25,000 = Rs. 75,000 can be paid within the final instalment.

Estimating one’s earnings and tax legal responsibility may be powerful. It’s straightforward to make errors when making advance tax funds, which may result in curiosity penalties for underpayment or further funds that would have been invested elsewhere. A tax guide can assist people and companies optimise their tax financial savings. Their experience can can help you declare all eligible deductions, preserve compliance, file returns conveniently, and keep away from pointless curiosity or penalties.

Advance Tax Due Dates

Now that you understand who ought to pay advance tax let’s perceive the deadlines to keep away from penalties. In response to advance tax guidelines, taxpayers (not beneath the presumptive taxation scheme) should pay their estimated tax legal responsibility in 4 instalments all through the monetary yr.

As we noticed within the instance above, the odds are cumulative, that means we are able to subtract the quantities already paid in earlier instalments from the entire due. Additionally, those that have opted for the presumptive taxation scheme will pay their advance tax in a single instalment earlier than fifteenth March.

Failing to pay, or delaying advance tax funds can entice penalty curiosity beneath Sections 234B and 234C of the Revenue Tax Act. The curiosity levied on excellent tax owed can add up rapidly, which is why it’s necessary to calculate and pay advance tax on time. With the assistance of our professional tax consulting providers, you’ll be able to precisely estimate your tax legal responsibility, plan your funds effectively, and keep away from any pointless curiosity penalties or compliance points.

Methods to Calculate Advance Tax?

You possibly can comply with these steps to calculate your advance tax legal responsibility:

1. Estimate the entire earnings for the monetary yr

This contains all taxable earnings, like skilled, enterprise, rental, capital features, curiosity, dividend, wage, and so forth. For the reason that acceptable quantity of TDS is deducted from wage, salaried people ought to particularly give attention to different sources of earnings to see if their tax legal responsibility exceeds Rs. 10,000 after TDS. They might want to pay advance tax on such earnings.

2. Subtract any deductions

In case you are planning to file taxes beneath the previous regime, chances are you’ll be eligible for a number of deductions on investments, mortgage repayments, insurance coverage premiums, and extra. Calculate these deductions and subtract them from complete earnings to get your taxable earnings.

3. Calculate complete tax legal responsibility

The advance tax slab will depend on your precise earnings tax slab. Use the newest tax slab charges to calculate your tax legal responsibility for the yr. Don’t overlook to account for cess and any relevant surcharge.

4. TDS excluding from complete tax legal responsibility

Now that you’ve got the entire tax legal responsibility, you’ll be able to subtract the TDS already paid or anticipated together with any relevant reduction (similar to Part 87A) to find out the advance tax owed. If this quantity exceeds Rs. 10,000, you’ll must make advance tax funds.

Here’s a normal formulation for calculating advance tax owed:

Advance tax owed = Estimated tax on complete earnings – TDS – Any reduction (similar to beneath Part 87A). You should utilize the advance tax charges to calculate every instalment precisely. In case your quarterly earnings varies an excessive amount of, you’ll be able to recalculate your legal responsibility and modify the following instalment.

Methods to Pay Advance Tax On-line?

Observe these steps to finish the advance cost of tax in earnings tax division’s on-line portal:

1. Go to the official e-filing portal of the Revenue Tax Division.
2. Navigate to the ‘e-Pay Tax’ choice. This selection may be discovered within the dropdown menu beneath Fast Hyperlinks, or alternatively, you may get to it via the search bar.
3. Right here, you’ll must enter your PAN or TAN particulars, alongside along with your cell quantity. Press proceed after you’ve executed so.
4. You’ll be prompted to enter the OTP you acquired. Enter it and press proceed.
5. On the following web page, you’ll encounter a number of choices. Choose the ‘Revenue Tax’ tab and proceed.
6. Choose the relevant evaluation yr, and within the ‘kind of cost’ select ‘Advance Tax (100)’. Click on proceed to proceed.
7. Fill within the tax particulars similar to tax, surcharge, cess, curiosity, and others. As soon as executed, press proceed.
8. On the following web page, you’ll be able to choose the mode of cost from choices like internet banking, NEFT, RTGS, debit card and so on. Press proceed.
9. You’ll be taken to a abstract web page the place you’ll be able to confirm the main points you’ve entered. Examine them completely and edit particulars if required. When you’ve verified the data, press ‘Pay Now’.
10. When you efficiently full the cost, you’ll see an acknowledgement seem on the following display. Save a duplicate of this tax receipt, as you’ll must enter the BSR code and challan quantity when submitting your tax return later.

Advance Tax Late Fee and Curiosity

Failure to adjust to advance tax guidelines can result in penalties beneath Sections 234B and 234C of the Revenue Tax Act.

Penalties beneath Part 234C: For delay in making advance tax funds

If a taxpayer fails to pay an advance tax instalment on time, curiosity is levied at 1% monthly. The curiosity is calculated from the due date of the missed instalment till the date of cost.

• 15% of complete tax legal responsibility by fifteenth June: 1% curiosity monthly for 3 months
• 45% by fifteenth September: 1% curiosity monthly for 3 months
• 75% by fifteenth December: 1% curiosity monthly for 3 months
• 100% by fifteenth March: 1% curiosity for 1 month

Penalties beneath Part 234B: For non-payment of advance tax

In response to advance tax provisions, taxpayers should pay a minimum of 90% of the entire tax earlier than thirty first March of the monetary yr. If advance tax will not be paid or lower than 90% of the entire legal responsibility is cleared by then, curiosity is charged at 1% monthly on the unpaid tax quantity.

Advance Tax Fee for Particular Instances

There are specific advance tax provisions in place for particular circumstances.

1. Senior citizen exemption: People aged 60 and over usually are not required to pay advance tax except they earn earnings from a enterprise or occupation. They’ll merely file their earnings tax returns earlier than the same old deadline.
2. Presumptive taxation scheme: As mentioned beforehand, taxpayers who’ve opted for the presumptive taxation scheme (Professionals beneath Part 44AD and companies beneath Part 44ADA) will pay advance tax in a single instalment earlier than fifteenth March.
3. In case your TDS deducted in a monetary yr exceeds your anticipated tax legal responsibility, you don’t must pay advance tax.

Conclusion

Advance tax is a sort of earnings tax which is paid as one earns. If the tax legal responsibility exceeds Rs. 10,000 in a monetary yr (after deducting TDS and reduction), they’re required to pay advance tax in 4 instalments as per the due dates set by the Revenue Tax Division. There are particular advance tax provisions which permit taxpayers incomes skilled or enterprise earnings to go for the presumptive taxation scheme, beneath which they will pay the advance tax by the fifteenth or thirty first of March in a single instalment.

The earnings tax India advance tax guidelines beneath Sections 234C and 234B state that delay or non-payment of advance tax can result in penalties. Traders ought to appropriately assess their tax legal responsibility for the yr and make changes each quarter to keep away from curiosity prices.