Income tax is normally paid after the end of the financial year, however, if the estimated net tax liability is Rs.10,000 or more during the financial year then the taxpayer should pay tax in the same financial year in 4 installments at specified dates. Advance tax is collected by the government to prepone revenue collection from a certain group of taxpayers.
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 the financial year had ended and based on the information available calculate the 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
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 at Rs.80,000 (Rs.1,00,000 – Rs.20,000).
How much advance tax should be paid in each installment?
There are 4 installments available for advance tax payment as follows
1st installment – 15 %
2nd 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.
The total advance tax calculated at the time of 1st installment is 1,00,000
first instalment is Rs.1,00,000 * 15 % = 15,000 Rs.
The second installment 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 the first installment, so net payment during the second installment is Rs.30,000.
While re-calculating advance tax for the third installment we came to know that the 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).
4th installment is 100 % of estimated tax liability which is Rs.1,20,000 Less Rs.90,000, so at the time of 4th installment we need to pay Rs.30,000.
At each stage, we should re-estimate and pay advance tax as per the current position.
The due date for Each installment
- 15th June – 15 %
- 15th September – 45 %
- 15th December – 75 %
- 15th March – 100 %
Important points regarding advance tax
- For taxpayers who had opted for presumptive taxation, advance tax can be paid in a lump sum in 4th installments without any interest. So for presumptive taxation, the due date is 15th March to pay 100 % tax in a lump sum.
- Advance tax provisions are not applicable to senior citizens if they don’t have a 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 on the respective installment dates, still we can pay advance tax on or before 31st March.
- If excess advance tax is paid, it can be claimed as a refund by income tax return filing.
- If the last date for paying advance tax falls on a bank holiday, then the advance tax shall be paid on the following working day
- Companies should pay advance tax only through Internet banking facilities, other persons can pay through the counter of the bank.
- The assessing officer is empowered to send notices to taxpayers based on income declared in the previous year’s income tax return. In such case, the taxpayer should pay advance tax calculated by assessing the officer of he may object by filing the respective form.