What is Advance Tax & How it is calculated?

As the name suggests, advance tax is a tax payment mechanism where the taxpayer pays the income tax in advance rather than making a lump sum payment after the end of the financial year.

The advance income tax payment is also known as ‘pay as you earn tax’ as tax payments are made in instalments according to the due date schedule of the IT department.

Here is a list of assessees who are liable to pay advance income tax-

• All the taxpayers, including salaried individuals, freelancers, and businesses with an estimated income tax liability of INR 10,000 or more after deduction of TCS/TDS and MAT credit

• As the employers already deduct TDS (Tax Deducted at Source), salaried taxpayers are only liable to pay advance tax if they generate additional income (which leads to additional tax liability),like interest, dividend, house property, business income, etc., and have an estimated tax liability of INR 10,000 or more

• Businesses and professionals who are taxed on a presumptive basis should pay advance tax if their estimated tax liability is INR 10,000 or more

• NRIs with income sources in India and an estimated tax liability of INR 10,000 or more

As for who should not make income tax advance tax payment, senior citizens (60 years or above) who are resident Indians with no income from profession or business are exempted from paying advance tax.

Follow these steps to calculate advance tax-

• Compute your GTI (Gross Total Income) by adding income from various heads, like Business & Profession, Salary, Capital Gain, House Property, and Other Sources

• Subtract deductions such as 80C, 80D, 80E, etc., from your GTI to calculate your Net Taxable Income

• Now, depending on your income tax slab, apply the tax rate to your Net Taxable Income for calculating the Total Tax Dues

• From the Total Tax Dues, subtract TDS / TCS to calculate your advance tax

Here is a quick overview of the advance tax payment procedure-

• Visit the IT department’s online tax payment portal and log in to your account

• Click on ‘Services’ and select ‘e-Payment’

• From the available list of challans, click on ‘Challan No/ITNS 280’

• Fill out the challan and choose payment type as ‘Advance Tax’

• Select the Assessment Year and Mode of Payment (Debit Card or NetBanking)

• Verify the details on the next page and click on ‘Submit’

• You’ll be redirected to the payment page for completing the payment

• On successful payment, you’ll receive the tax receipt

After paying your advance tax, ensure you also declare the same while filing your tax returns.

Here are the advance tax payment due dates for all the taxpayers, like salaried individuals, freelancers, businesses, and NRIs-

Taxpayers who don’t clear their advance tax liabilities according to the payment schedule are liable to pay interest under Sections 234B and 234C of the IT Act.

Currently, the penalty for not paying advance tax is a simple interest of 1% per month on the outstanding advance tax liability.

To make tax payments easier for customers, AU Small Finance Bank, the Largest Small Finance Bank in the country, has introduced a one-stop Tax Payments Solution. The user-friendly online platform can be used for paying taxes like advance tax, income tax, GST, TDS, and more.

With paperless transaction processing and 24x7 assistance, our online platform eliminates the hassles of tax payment and makes the entire process convenient, quick, and secure.

Read More: Benefits of Income Tax Return (ITR) Filing

Disclaimer -

This blog has been prepared to provide the readers with general information and basic understanding of advance tax. The Income tax definitions and rules keep on changing so, it is suggested that to avoid any doubt, the reader should cross-check all the facts and contents of the material.

Before taking any decisions, please consult your tax advisors.