Income tax is normally paid after the end of the financial year, however if estimated net tax liability is Rs.10,000 or more during the financial year then tax payer should pay tax in the same financial year in 4 instalments at specified dates. Advance tax is collected by the government to prepone revenue collection from certain group of tax payers.
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How to calculate advance tax ?
Advance tax is calculated as estimated tax, the final liability may be more or less at the time of income tax return filing for business. Just assume that financial year had ended and based on the information available calculate estimated net tax liability. Advance tax is estimated net tax liability so it includes educational cess surcharge if any and after deducting expected TDS rebate etc.
ESTIMATED NET TAX LIABILITY = ADVANCE TAX
Example :
Estimated tax liability is Rs.1,00,000 (Including educational cess)
TDS expected to be deducted Rs.20,000
So the advance tax should be calculated on Rs.80,000 (Rs.1,00,000 – Rs.20,000).
How much advance tax should be paid in each instalment ?
There are 4 instalments available for advance tax payment as follows
1 st installment – 15 %
2 nd installment – 45 %
3rd installment – 75 %
4th installment – 100 %
At the time of each installment date of advance tax payment we need to recalculate advance tax and the mentioned % of total advance tax should be completely paid as on the date of payment of installment.
Example:
Total advance tax calculated at the time of 1 st instalment is 1,00,000
first instalment is Rs.1,00,000 * 15 % = 15,000 Rs.
Second instalment is 45 % of Rs.1,00,000 Less advance tax already paid so advance tax liability is Rs.1,00,000 * 45 % = Rs.45,000 Less Rs.15,000 paid during first installment so net payment during second installment is Rs.30,000.
while re calculating advance tax for third instalment we came to know that total estimated tax will be Rs.1,20,000, then we should calculate 75 % on Rs.1,20,000 which is Rs.90,000 and deduct advance tax already paid Which comes to Rs.45,000 (Rs.90,000 – Rs.45,000).
4 th installment is 100 % of estimated tax liability which is Rs.1,20,000 Less Rs.90,000, so at the time of 4 th installment we need to pay Rs.30,000.
At each stage we should re estimate and pay advance tax as per current position.
Due date for Each installment
- 15 th June – 15 %
- 15 th September – 45 %
- 15 th December – 75 %
- 15 th March – 100 %
Important points regarding advance tax
- For taxpayers who had opted for presumptive taxation advance tax can be paid in lumpsum in 4 th installment without any interest. So for presumptive taxation due date is 15 th March to pay 100 % tax in lumpsum.
- Advance tax provisions are not applicable to senior citizens if they don’t have business or professional income.
- Delay in payment of advance tax attracts 234B and 234C interest for delay and deferment of advance tax respectively.
- If you fail to pay advance tax in the respective installment dates still we can pay advance tax on or before 31 st March.
- If excess advance tax is paid it can claimed as refund by income tax return filing.
- If the last date for paying advance tax falls on bank holiday then the advance tax shall be paid on following working day
- Companies should pay advance tax only through internet banking facility other persons can pay through counter of the bank.
- Assessing officer is empowered to send notices to tax payer based on income declared in previous year income tax return. In such case taxpayer should pay advance tax calculated by assessing officer of he may object by filing respective form.
