What Is Advance Tax And How Is It Calculated

What Is Advance Tax And How Is It Calculated

Embracing advance tax payment approach can help mitigate the challenge of tax filing due to data collection significant tax obligations.

Written by : Shipra Chaudhary

Reviewed by : Jasmeet Bedi

Jasmeet Bedi

2022-01-31

2447 Views

9 minutes read

Locate branch
Resume journey
Pay Premium
Contact us

Every citizen of India is liable to pay tax if their income comes under the Income Tax bracket set by the Government of India. The government mainly depends on its tax collection to finance its spending throughout the year. This funding is utilised to develop the nation, reform infrastructure, and improve society, which helps shape the country's economy. A tax structure in India is followed, and as per the tax slabs, individuals are required to pay their taxes. Let us understand what is advance tax and how to calculate advance tax in India.

Table of Content

What is Advance Tax?

Advance tax is the amount of income tax that should be paid in advance instead of a lump-sum payment at the year-end in instalments as per the due dates given by the income tax department. It is also known as the 'pay as you earn' tax and is supposed to be paid in the same year the income is received.

Who Needs to Pay Advance Tax?

Advance tax is typically mandated for individuals and entities facing substantial tax obligations. Here are the primary taxpayer groups required to fulfil advance tax payments:

  • As per section 208 of the Income Tax Act, a taxpayer, whether self-employed, professional, or salaried, must pay advance tax if their tax liability is ₹10,000 or more in a financial year. For instance, if your tax liability for the FY 2019-2020 exceeds ₹10,000, then you are required to pay tax in advance in the same year.
  • Non-resident individuals and foreign companies generating income in India must adhere to advance tax regulations if their tax liability exceeds ₹10,000.
  • This tax applies to self-employed individuals, professionals, and businessmen who earn money from sources other than salary. If their income exceeds a certain limit, it applies to money from shares, interest earned on fixed deposits, rent, or income received from house tenants.

Did you know?

Senior citizens over 60 years of age are exempt from advance tax.

Claim Settlement Ratio

How to Calculate Advance Tax?

Listed below are the four steps that will help you calculate advance tax:

  1. Estimate the total income earned by you other than your salary.

  2. Subtract all expenses from your income, including medical insurance premiums, phone costs, travel expenses, etc.

  3. Now, add other income that you received apart from your salary. This includes interest from FDs, house rent, lottery winnings, etc. 

  4. If the amount of tax calculated is more than ₹10,000, then you are liable to pay advance tax.

Click here to use - Income Tax Calculator

Example of Advance Tax Calculation

Naveen is a salaried professional. For FY 2020-21, Naveen estimated that his annual gross receipts would be ₹40,00,000, and his expenses would be ₹24,00,000. Naveen deposited ₹80,000 in his PPF account for his post-retirement expenses. He also paid ₹50,000 towards his life insurance premium. Further, he paid ₹24,000 towards his health insurance. The professional receipts of Naveen are subject to TDS. He estimated a TDS of ₹60,000 on certain professional receipts for the FY 2020-21. Besides, he estimated an interest of ₹10,000 on fixed deposits held by him. Here is how to calculate advance tax on Naveen’s salary:

Income Estimation for Advance TaxAmount (in Rs.)Amount (in Rs.)
Income Details:  
Gross Receipts40,00,000 
Less: Expenses24,00,00016,00,000
   
Income from other sources  
Interest from Fixed Deposit 10,000
Gross Total Income 16,10,000
Less: Deduction under Section 80C  
Contribution to PPF80,000 
Life Insurance Premium50,000 
 1,30,000 
Deduction Under Section 80D24,0001,54,000
Total Income 14,56,000
   
Total Tax Liability 16,40,839
Add: Health & Education Cess 63,109
  17,03,948
Less: TDS 60,000
Assessed Tax 15,80,839

How to Pay Advance Tax Online?

Just like regular tax payments, advance tax payments are also made using challan. Many banks allow you to pay the tax through challans. You can also pay advance tax online from the comfort of your home. 

Here's a step-by-step guide that will help you pay advance tax online without any hassles:

  1. For advance payment of tax online, you need to click on the government's official website - http://www.tin-nsdl.com.
  2. Choose the correct challan that is ITNS 280, ITNS 281, ITNS 282 or ITNS 284 as relevant to pay your advance tax.
  3. Fill in your PAN card details along with other important information such as your address, phone number, e-mail address, bank name, etc.
  4. Once you have entered all the details, you will be redirected to the website's net banking page. 
    Step 5. Now, you will receive all the information regarding your payment. Enter all payment details and pay your advance tax online successfully.

What are the Benefits of Advance Tax?

Here's a list of benefits you get when you pay tax in advance:

  1. It reduces the burden of paying taxes at the last moment.
  2. It helps mitigate stress that a taxpayer may undergo while making a tax payment at the end of the fiscal year.
  3. It saves people from failing to make their tax payments.
  4. It helps raise government funds as the government receives interest on the tax collected.

What are Due Dates for Payment of Advance Tax?

Here's a schedule of advance tax payment for individual and corporate taxpayers –
 

Due DatesAdvance Tax Payable
On or before the 15th of June15% of advance tax liability
On or before the 15th of September45% of advance tax liability
On or before the 15th of December75% of advance tax liability
On or before the 15th of March100% of advance tax liability


Also Read about - Corporate Tax

Did you know?

Income Tax Day is celebrated in India on July 24th every year. The department organises various outreach programmes with an aim to promote tax payments.

Source: Zeebiz

Final Thoughts

Taxation is a civic responsibility that contributes to the nation’s overall development. Advance tax payment is an essential component of India's tax framework, ensuring timely tax payments and ensuring timely contributions towards national growth and infrastructure development. By understanding how to calculate advance tax and adhering to payment schedules, taxpayers can fulfil their duties while alleviating last-minute tax burdens. 

Glossary

  • Tax Slab: A predefined range of income levels on which different tax rates are applied. It determines the amount of tax an individual or entity owes to the government.
  • Tax Liability: The total amount of tax that an individual or entity is legally obligated to pay to the government based on their income, deductions, and applicable tax rates.
  • Fixed Deposits (FDs): FDs are popular investment instruments offered by banks or financial institutions. Under this option, a fixed sum of money is deposited for a specified period, typically earning a predetermined interest rate.
glossary-img
Uncertain About Insurance
AdBanner-desktop

Tax Savings - Top Selling Plans

We bring you a collection of popular Canara HSBC life insurance plans. Forget the dusty brochures and endless offline visits! Dive into the features of our top-selling online insurance plans and buy the one that meets your goals and requirements. You and your wallet will be thankful in the future as we brighten up your financial future with these plans.

Family Shield: Enhanced Protection

iSelect Smart360 Term Plan
  • 3 Plan options
  • Life cover till 99 years
  • Steady income benefit
  • Block your premium at inception

Fixed Returns, Zero Risks & Worries

iSelect Guaranteed Future Plus
  • 4 Plan options
  • Life cover + Guaranteed benefits
  • Accidental death benefit
  • Premium protection cover

Start Young, Pay Less, Stay Secured

Young Term Plan
  • Life cover till 99 years
  • Coverage for spouse
  • Block your premium rate
  • Covers 40 critical illness

Recent Blogs

Term Insurance Can Help You In Reducing Your Tax Liabilities
02 Aug '24
875 Views
Term insurance can help you safeguard the financial future of your loved ones. But did you know that it is an ideal tax-saving option too? Here’s all you need to know.
Read More
Tax Saving
The Importance of Tax Saving Investments in Your 20s
02 Aug '24
872 Views
Start saving on taxes in your 20s! Find the perfect tax-saving investment plan for a secure future with Canara HSBC Life Insurance. The sooner you begin, the better it gets.
Read More
Tax Saving
Understanding the Importance of Taxes in India
02 Aug '24
871 Views
Explore the significance of taxes in India and understand why they matter. Learn about the Indian taxation system and its importance for citizens. Discover more with Canara HSBC Life Insurance.
Read More
Tax Saving

FAQs Related to Advance Tax Payment

To pay advance tax, you need to meet the following eligibility criteria:

  • Your tax liability should be ₹10,000 and above
  • You should be a salaried professional or self-employed individual. 
  • If you are earning through rentals from a house or property
  • If you earn interest from any Fixed Deposits in your name

If the taxpayer deposits less than 90% of the total tax liability, interest will be levied under Section 234B. The individual has to pay interest at 1% per month. However, if you pay a higher tax in advance or tax more than necessary, you will receive the excess amount as a refund. Income Tax department will pay interest at the rate of 6% per annum to the taxpayer on the excess amount if the amount is more than 10% of the tax liability.

Failing to pay the advance tax by due dates results in a penalty. Penalty will be levied on the unpaid amount of tax at 1% simple interest per month for part of the month under Section 234B. If the taxpayer doesn’t make the full payment, interest is levied on the shortfall amount. In case of a shortfall in payment, interest will be levied for a period of 3 months under Section 234C.

Yes, deduction can be claimed under Section 80C while estimating income for calculating advance tax.

If you are an NRI and you receive your salary in an Indian bank account, your salary is subjected to Indian Tax Laws. The last date to file income tax return in India for NRIs is July 31st. And being an NRI, if your tax liability exceeds ₹10,000 in a financial year, you are required to pay advance tax.

As a citizen of India, you must pay your taxes on time. If you fail to do so by a stipulated timeline, then you are subject to pay a certain amount in the form of penalty as per Income Tax Act, 1961. Besides, if you are planning to buy a tax savings plan online, prefer to go with Canara HSBC Life Insurance.

Challan 280 is a document individuals can utilise to submit payments for various tax obligations, including self-assessment tax, tax on distributed income and profit, regular assessment tax, advance tax, and surtax. It allows taxpayers to proactively manage their tax responsibilities and avoid penalties associated with delayed payments.

Yes, as per Section 208 of the Income Tax Act 1961, any individual whose projected tax liability for the fiscal year equals or exceeds ₹10,000 is obligated to settle advance tax payments. Any delays or non-compliance can lead to tax penalties.