Advance Tax: What is it, why pay, & how to calculate it

In India, income tax is levied on your annual income earned during a financial year. However, the actual tax payment isn't a lump sum paid at the end of the year. In fact, to ensure a steady flow of income, the government has devised a year-round tax collection mechanism that reduces the risk of defaults.

This guide explores the concept of advance tax, a mechanism that distributes your tax liability throughout the year.

What is the advance payment of income tax?

Advance tax, often called "pay-as-you-earn" tax, is a system where taxpayers pay a portion of their annual tax liability in installments throughout the year rather than a lump sum at the end of the fiscal year.

Who is eligible to pay advance tax in India?

Advance tax payments are required for individuals, salaried employees, freelancers, and businesses. Anyone whose estimated tax liability for the year exceeds Rs.10,000 must pay advance tax. Any remaining tax liability after considering advance tax and TDS is paid as self-assessment tax when filing the income tax return.

 It’s also worth noting that there's no choice between paying advance tax and self-assessment tax: each applies based on your tax situation and timing.

Advance tax payment due dates in India

Advance tax payments are to be made in installments, with specific due dates set by the Income Tax Department:

1. 15^th June: 15% of the total tax liability should be paid.
2. 15^th September: 45% of the tax liability should be paid, including the earlier installment.
3. 15^th December: 75% of the tax liability should be paid, including earlier installments.
4. 15^th March: 100% of the total tax liability should be paid.

These deadlines ensure taxpayers distribute their tax payments evenly throughout the financial year, easing the burden of a large payment at the end of the year.

How to calculate advance tax liability

Paying advance tax is a straightforward process, and it can be done online through the following steps:

1. Estimate Your Income: Project your income for the financial year (AY) 2024-25, considering all sources like salary, investments, or business income.
2. Factor in Deductions & Exemptions: Research and identify deductions and exemptions you can claim under the Income Tax Act.
3. Calculate Taxable Income: Subtract allowable deductions and exemptions from your estimated income to arrive at your taxable income.
4. Apply Tax Rate: Based on your AY 2024-25 income slab, apply the relevant tax rate to your taxable income to determine your estimated tax liability.

Once you have your advance tax calculator, you can pay it either online or offline:

• Online Mode: The Income Tax Department’s e-filing portal allows for online advance tax payment using net banking or credit/debit cards.
• Offline Mode: Tax payments can also be made by challan at designated banks.

Endnote

Understanding and adhering to the advance tax system promotes responsible tax practices. By estimating your income tax liability and making timely installments, you can ensure a smoother tax filing process and avoid potential penalties or interest charges.

Keeping track of all your expenses is essential for convenient tax calculation and payment. A digital debit card like the 811 Debit Card by Kotak811 does this for you at your fingertips while providing exclusive discounts with various brands.

FAQs

What are the 4 installments of advance tax?

Advance tax can be paid in four installments: 15% by June 15, 45% by September 15, 75% by December 15, and 100% by March 15.

What happens if I don't pay advance tax?

Failing to pay advance tax can result in interest penalties under Sections 234B and 234C and possible legal action for non-compliance.

Is advance tax applicable to salaried employees?

Salaried employees generally have TDS (Tax Deducted at Source) deducted by their employers, but they may still be liable for advance tax on additional income from sources like rent, interest, capital gains, or business income.

Popular Searches on Kotak811

Kotak 811 | Kotak811 Insights | Super Savings Account | Zero Balance Account Opening Online | Credit Card Against FD | Apply for Image Debit Card | ActivMoney Savings Account | Online Savings Account | Savings Account Fees and Charges | Apply for Current Account Online | Check Your CIBIL Score | UPI Payments App | Dormant Account Activation | Digital Savings Account | Instant Personal Loan

This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.