What’s Advance Tax Fee: Which means and Calculation

When taxpayers’ tax legal responsibility in a monetary yr exceeds a certain quantity, they’re required to pay tax prematurely 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 which means. Advance tax is a sort of revenue tax you pay beforehand over 4 instalments quite than in lump sum after the top of the monetary yr. Taxpayers should estimate their annual revenue and calculate their anticipated tax legal responsibility prematurely. If the full tax due (after TDS) comes out to be greater than Rs. 10,000, they have to pay a sure share 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.

Chances are you’ll be questioning, why taxpayers have to pay advance tax as an alternative of simply settling the complete quantity whereas submitting their returns on the finish of the yr. The rationale for that is that the federal government desires to make sure they obtain a gradual move of tax income all year long, much like how salaried staff have TDS deducted month-to-month. For taxpayers who don’t have common TDS deductions, like self-employed people, freelancers, enterprise house owners, and even salaried staff, the advance tax India construction makes positive taxes are paid recurrently 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, you must pay advance tax in instalments to keep away from curiosity penalties. The precise advance tax share depends upon the due date introduced by the Earnings 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 might not have common TDS on their revenue. 

For instance, a freelancer falling within the 30% advance tax slab might have purchasers who deduct solely 10% TDS on funds. This creates a niche 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 revenue)

Professions resembling legal professionals, medical doctors, and consultants, that’s, these taxpayers who work independently and earn revenue with out a fastened wage, are additionally required to estimate their annual revenue and pay advance tax if their complete tax legal responsibility after TDS goes over the Rs. 10,000 restrict. 

Nonetheless, the advance tax slab for particular person professionals choosing the presumptive taxation scheme underneath Part 44ADA is a bit completely different. Such people don’t have to pay their advance tax in 4 instalments. Somewhat, they’ll pay their total tax legal responsibility in a single instalment by fifteenth March.

Companies underneath presumptive taxation scheme

If a enterprise has opted for the presumptive taxation scheme underneath Part 44AD, it’s required to pay advance tax if legal responsibility exceeds Rs. 10,000. Not like different companies, nonetheless, these underneath presumptive taxation are allowed to pay their total advance tax in a single single instalment by fifteenth March, as an alternative of 4 instalments.

NRIs

If an NRI’s complete tax legal responsibility in India (from any taxable Indian sources like capital positive aspects or rental revenue) exceeds Rs. 10,000 after TDS in a monetary yr, they have 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. Nonetheless, senior residents who’ve a enterprise or skilled revenue, have to pay advance tax if tax legal responsibility exceeds Rs. 10,000. This may be performed in 4 instalments, or 1 earlier than fifteenth March (underneath the presumptive taxation system).

Advance Tax Slabs and Charges

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

For instance, if the estimated taxable revenue of a person incomes enterprise revenue is Rs. 20 lakh (after subtracting TDS and deductions), they’d fall underneath the 30% tax bracket as per the revenue tax slabs. Let’s assume their tax legal responsibility for the yr underneath 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, because the first and second instalments already coated 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 revenue 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 additional funds that might have been invested elsewhere. A tax marketing consultant will help people and companies optimise their tax financial savings. Their experience can will let you declare all eligible deductions, keep compliance, file returns conveniently, and keep away from pointless curiosity or penalties.

Advance Tax Due Dates

Now that you already know who ought to pay advance tax let’s perceive the deadlines to keep away from penalties. In line with advance tax guidelines, taxpayers (not underneath 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, which means we will subtract the quantities already paid in earlier instalments from the full due. Additionally, those that have opted for the presumptive taxation scheme pays their advance tax in a single instalment earlier than fifteenth March.

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

The best way to Calculate Advance Tax?

You may observe these steps to calculate your advance tax legal responsibility:

1. Estimate the full revenue for the monetary yr

This contains all taxable revenue, like skilled, enterprise, rental, capital positive aspects, curiosity, dividend, wage, and so forth. Because the acceptable quantity of TDS is deducted from wage, salaried people ought to particularly deal with different sources of revenue to see if their tax legal responsibility exceeds Rs. 10,000 after TDS. They might want to pay advance tax on such revenue.

2. Subtract any deductions

In case you are planning to file taxes underneath the outdated regime, it’s possible 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 revenue to get your taxable revenue.

3. Calculate complete tax legal responsibility

The advance tax slab depends upon your precise revenue 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 full tax legal responsibility, you possibly can subtract the TDS already paid or anticipated together with any relevant reduction (resembling Part 87A) to find out the advance tax owed. If this quantity exceeds Rs. 10,000, you’ll have to make advance tax funds.

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

Advance tax owed = Estimated tax on complete revenue – TDS – Any reduction (resembling underneath Part 87A). You need to use the advance tax charges to calculate every instalment precisely. In case your quarterly revenue varies an excessive amount of, you possibly can recalculate your legal responsibility and alter the following instalment.

The best way to Pay Advance Tax On-line?

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

1. Go to the official e-filing portal of the Earnings Tax Division.
2. Navigate to the ‘e-Pay Tax’ possibility. This selection may be discovered within the dropdown menu underneath Fast Hyperlinks, or alternatively, you may get to it via the search bar.
3. Right here, you’ll have to enter your PAN or TAN particulars, alongside along with your cell quantity. Press proceed after you’ve performed so.
4. You’ll be prompted to enter the OTP you obtained. Enter it and press proceed.
5. On the following web page, you’ll encounter a number of choices. Choose the ‘Earnings Tax’ tab and proceed.
6. Choose the relevant evaluation yr, and within the ‘sort of cost’ select ‘Advance Tax (100)’. Click on proceed to proceed.
7. Fill within the tax particulars resembling tax, surcharge, cess, curiosity, and others. As soon as performed, press proceed.
8. On the following web page, you possibly can choose the mode of cost from choices like web banking, NEFT, RTGS, debit card and so on. Press proceed.
9. You’ll be taken to a abstract web page the place you possibly can confirm the main points you’ve entered. Test 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 screen. Save a replica of this tax receipt, as you’ll have to 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 underneath Sections 234B and 234C of the Earnings Tax Act.

Penalties underneath 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% per thirty days. 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 per thirty days for 3 months
• 45% by fifteenth September: 1% curiosity per thirty days for 3 months
• 75% by fifteenth December: 1% curiosity per thirty days for 3 months
• 100% by fifteenth March: 1% curiosity for 1 month

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

In line with advance tax provisions, taxpayers should pay at the very least 90% of the full tax earlier than thirty first March of the monetary yr. If advance tax is just not paid or lower than 90% of the full legal responsibility is cleared by then, curiosity is charged at 1% per thirty days on the unpaid tax quantity.

Advance Tax Fee for Particular Instances

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

1. Senior citizen exemption: People aged 60 and over should not required to pay advance tax until they earn revenue from a enterprise or occupation. They’ll merely file their revenue tax returns earlier than the standard deadline.
2. Presumptive taxation scheme: As mentioned beforehand, taxpayers who’ve opted for the presumptive taxation scheme (Professionals underneath Part 44AD and companies underneath Part 44ADA) pays 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 have to pay advance tax.

Conclusion

Advance tax is a form of revenue 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 Earnings Tax Division. There are particular advance tax provisions which permit taxpayers incomes skilled or enterprise revenue to go for the presumptive taxation scheme, underneath which they’ll pay the advance tax by the fifteenth or thirty first of March in a single instalment.

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