Advance Tax

Advance tax is the tax paid in advance on the estimated income of the financial year, before the end of the financial year. It is a method of paying income tax in installments instead of a lump sum payment at the end of the year. Here is all the important information related to Advance Tax in India:

1. Applicability of Advance Tax:

• Advance tax is applicable to all taxpayers whose total tax liability for the financial year exceeds Rs. 10,000.

• Advance tax is applicable to all types of income such as salary, business income, capital gains, etc.

2. Benefits of depositing Advance Tax:

• Avoid interest and penalty: By depositing advance tax on time, taxpayers can avoid the interest and penalty levied on late payment of taxes.

• Better financial planning: Paying tax in installments helps in better financial planning and reduces the burden of a lump sum payment at the end of the financial year.

• Avoid tax notices: Paying advance tax on time also helps to avoid tax notices and legal consequences.

3. Payment scenario for Advance Tax:

• For individuals and non-corporate taxpayers, advance tax is payable in four installments.

• The first installment of advance tax is payable by 15th June, the second installment by 15th September, the third installment by 15th December, and the fourth installment by 15th March.

• For corporate taxpayers, the payment scenario for advance tax varies depending on the nature of the company and the estimated tax liability.

4. Calculation of Advance Tax:

• Advance tax is calculated on the estimated income of the financial year.

• The estimated income is calculated by adding all the expected sources of income and deducting the expected expenses and deductions.

• The tax liability on the estimated income is then calculated, and the advance tax payable is determined based on the payment scenario.

5. Penalty for non-compliance:

• Non-payment or short payment of advance tax can attract a penalty of 1% per month on the amount of tax that should have been paid.

• If the total advance tax paid is less than 90% of the assessed tax liability, interest is charged at the rate of 1% per month on the shortfall amount.

In conclusion, paying advance tax helps in better financial planning and avoiding interest and penalties. Taxpayers should ensure timely payment of advance tax to avoid tax notices and legal consequences.