To run the nation easily, the federal government wants a gentle stream of income all year long. Since earnings tax is a significant supply of this income, counting on tax funds on the finish of the monetary 12 months can create gaps and issues for them. To handle this, the federal government launched the advance tax cost system to make sure that people and companies pay taxes as they earn.
In keeping with this technique, these with tax legal responsibility above a sure threshold should pay advance tax in installments over the 12 months. This additionally helps taxpayers distribute a big burden on the finish of the 12 months as they will pay taxes in smaller, manageable quantities over time, similar to an EMI.
Understanding Advance Tax Funds
So, what’s advance tax? Merely put, it’s the tax you pay earlier than the monetary 12 months ends, as a substitute of ready till the top of the 12 months to clear all of your dues. It is usually referred to as the ‘pay-as-you-earn’ scheme since you pay taxes in installments primarily based in your estimated earnings all year long.
In case your whole tax legal responsibility exceeds Rs. 10,000 in a monetary 12 months (after adjusting for TDS), you’re required to pay advance tax in 4 installments, on or earlier than fifteenth June, fifteenth September, fifteenth December, and fifteenth March. Since taxpayers will be penalised for inaccurate funds or delays, many individuals choose reaching out to a monetary advisor for stress-free submitting.
Who Must Pay Advance Tax?
Any enterprise or particular person whose estimated tax legal responsibility in a given monetary 12 months exceeds Rs. 10,000 should pay advance tax. This contains:
1. Salaried people with earnings past wage
In case your main supply of earnings is wage, your employer already deducts TDS on the acceptable slab charges, which implies you don’t want to make an advance earnings tax cost on wage. You might discover that this TDS provision does the precise factor as advance tax – it maintains a steady stream of tax income for the federal government.
Nevertheless, you probably have different sources of earnings, resembling from lease, capital positive aspects, curiosity from FDs, dividends, and lottery winnings, and the TDS deducted doesn’t cowl your whole tax legal responsibility, it’s essential to pay advance tax.
2. Freelancers and self-employed professionals
People incomes knowledgeable earnings resembling consultants, attorneys, docs, and writers, should estimate their annual earnings and pay advance tax in 4 installments. Because the acceptable TDS is probably not deducted from such earnings, you’re liable for fulfilling your tax obligations. For instance, your employer could solely deduct a ten% TDS in your freelance earnings. Nevertheless, should you fall below the 20% tax slab, you’ll nonetheless must pay the remaining 10% as advance tax to keep away from curiosity or penalties. Speaking to a tax saving advisor in such instances will be fairly useful.
Underneath Part 44ADA, professionals can go for the presumptive taxation scheme and pay their advance tax legal responsibility in a single installment earlier than thirty first March.
3. Companies
All companies are required to pay advance tax in 4 installments if their anticipated tax legal responsibility crosses Rs. 10,000 in a monetary 12 months. These choosing the presumptive taxation scheme below Part 44AD pays their whole advance tax in a single installment by thirty first March as a substitute of 4.
4. Non-residents
If you’re an NRI and earn an earnings from any taxable Indian sources like lease, FD curiosity, or capital positive aspects exceeding Rs. 10,000 after TDS in a monetary 12 months, it’s essential to pay advance tax earlier than the advance tax due dates.
5. Exemptions
- Senior residents who don’t earn earnings from a enterprise or career are exempt from paying advance tax, even when their whole taxable earnings exceeds Rs. 10,000.
- If employers deduct enough TDS out of your wage and canopy your whole tax legal responsibility, you don’t want to pay advance tax individually.
- If the TDS deducted by banks, employers, mutual fund homes, and tenants from varied sources of earnings (wage, rental, mounted deposits, curiosity, and many others.) is enough to cowl your whole tax legal responsibility, you needn’t make an earnings tax advance tax cost.
Advance Tax Cost Dates and Due Dates
Given under are the advance tax cost dates established by the federal government. Lacking them may end up in penalties below Sections 234B and 234C of the Revenue Tax Act.
| Due Date | Tax Payable |
| On or earlier than fifteenth June (First installment) | Not less than 15% of whole tax legal responsibility |
| On or earlier than fifteenth September (Second installment) | Not less than 45% of whole tax legal responsibility |
| On or earlier than fifteenth December (Third installment) | Not less than 75% of whole tax legal responsibility |
| On or earlier than fifteenth March (Fourth installment) | 100% of tax legal responsibility |
People and firms who’ve opted for the presumptive taxation scheme can merely make their advance tax funds in a single installment by thirty first March. For the remainder, the federal government has set clear advance tax due dates, not like TDS cost final date, which is mostly the seventh of the next month.
Advance Tax Cost On-line
Funds will be made bodily at designated financial institution branches, however you can too conveniently make earnings tax advance tax funds on-line by means of the IT Division’s tax portal, by way of web banking, debit playing cards, and even UPI. In case you’re questioning the best way to pay advance tax on-line, you’ll find the step-by-step walkthrough close to the top of this text!
The right way to Calculate Advance Tax
Calculating precisely how a lot advance tax is owed will be difficult because it requires you to make an inexpensive estimate of your earnings and tax legal responsibility for the 12 months. One could marvel the best way to pay advance tax so early in June when your complete 12 months’s earnings is unsure. Fortunately, since there are 4 installments, you can also make changes within the later quarters primarily based in your precise earnings.
In case your earnings will increase, you’ll be able to pay the additional tax within the subsequent installment to keep away from penalties. Alternatively, in case your earnings are decrease than what you initially anticipated, your remaining funds will be decreased accordingly.
Right here’s how one can calculate advance tax:
1. Estimate how a lot you’ll earn within the monetary 12 months
To make an correct estimate of your tax legal responsibility, you’ll want to take into consideration each supply of your earnings. This contains wage, enterprise earnings, curiosity, dividends, rental earnings, skilled earnings, capital positive aspects from investments, and another taxable earnings.
2. Previous regime issues
In case you plan on submitting your taxes below the outdated tax regime, subtract any deductions you could be eligible for. Some examples are
- Part 80C deductions as much as Rs. 1.5 lakh per 12 months for investing in ULIPs, ELSS, PPF, SCSS, and extra.
- Part 80D deductions for funds in the direction of medical insurance premiums for your self and your family members.
- Part 80E deductions on curiosity funds for training loans.
- Part 24(b) deductions on curiosity paid on dwelling loans.
Subtracting these deductions and exemptions ought to provide the gross taxable earnings on which you’ll be able to calculate your tax legal responsibility for the 12 months.
3. Decide tax owed primarily based on earnings tax slabs
Use an earnings or advance tax calculator with the most recent slab charges to get a dependable estimate of tax owed. These calculators additionally account for cess and surcharge which will be simply missed when calculating manually. A wealth planner may help you with this step and likewise information you to optimize your tax legal responsibility by benefiting from deductions, exemptions, and funding choices. They guarantee not solely that you simply save as a lot tax as you legally can but additionally construct long-term wealth by means of personalised funding and tax plans.
4. Subtract tax deducted at supply
TDS already deducted, otherwise you count on might be deducted, will be subtracted to reach at your web tax legal responsibility. You can too subtract any eligible reduction like below Part 87A to find out the quantity of tax owed. If this determine is above Rs. 10,000, it’s essential to pay advance tax earlier than the required due dates and if the TDS paid exceeds your anticipated tax legal responsibility, you needn’t pay any tax prematurely.
The right way to Calculate Advance Tax Funds – An Instance
Suppose Raj estimates his skilled earnings after subtracting TDS and deductions for the monetary 12 months can be Rs. 26 lakh. In keeping with the brand new regime, this earnings would fall within the highest tax slab, 30%. This implies, his whole tax legal responsibility (cess added) can be round Rs. 5 lakh. Assuming he hasn’t opted for the presumptive taxation scheme, right here’s how he could make his advance tax cost in 4 installments:
installment 1: Cost due on or earlier than fifteenth June
15% of Rs. 5 lakh = Rs. 75,000
installment 2: Cost due on or earlier than fifteenth September
45% of Rs. 5 lakh = Rs. 2,25,000. Since Raj already paid Rs. 75,000 within the first installment, he can subtract it from this one. So his second advance tax cost can be Rs. 2,25,000 – Rs. 75,000 = Rs. 1,50,000
installment 3: Cost due on or earlier than fifteenth December
75% of Rs. 5 lakh = Rs. 3,75,000. Similar to earlier than, we’ll subtract the primary and second installment quantities, that means his third cost can be Rs. Rs. 1,50,000. By fifteenth December, Raj may have cleared 3/4th of his tax legal responsibility.
installment 4: Cost due on or earlier than fifteenth March
Tax left = Rs. 5,00,000 – Rs. 3,75,000 = Rs. 1,25,000
With these 4 funds, Raj avoids a big lump sum burden on the finish of the monetary 12 months and the federal government can keep a gentle stream of income all year long.
Advance Tax Slabs and Charges
The advance tax charges are:
- 15% by fifteenth June
- 45% by fifteenth September
- 75% by fifteenth December
- 100% by fifteenth March
Keep in mind this isn’t a separate tax. The advance tax share merely tells you the portion of your tax legal responsibility due earlier than a specified date. Your legal responsibility remains to be calculated primarily based on the outdated or new tax regime as there isn’t a separate advance tax slab.
Avoiding Penalties for Late Advance Tax Funds
It is very important notice if the due dates for making advance earnings tax funds are missed, the Revenue Tax Division imposes curiosity on the due quantity. In case you miscalculate your anticipated earnings and pay much less tax than required by the primary due date, you’ll be charged a 1% curiosity monthly on the remaining quantity. This curiosity is utilized below Part 234B and Part 234C of the Revenue Tax Act.
The penalty can even apply should you miss the following cost deadline. Failing to pay the third or closing installment, will end in a 1% easy curiosity being charged every month on the unpaid tax till the total quantity is cleared. In case you fail to pay at the very least 90% of the whole tax earlier than thirty first March you’ll be charged 1% monthly on the quantity unpaid.
Step-by-Step Information to Paying Advance Tax On-line
One could make advance tax cost on-line by following these easy steps:
- Go to the Revenue Tax Division’s official e-filing portal.
- Search for the ‘e-Pay Tax’ choice which will be discovered within the dropdown part below Fast Hyperlinks.
- You can too simply discover it by way of the search bar.
- You’ll be prompted to enter your PAN or TAN particulars and cell quantity. Enter them and press proceed. When you obtain the OTP, enter it and press proceed once more.
- On the brand new web page, click on on the ‘Revenue Tax’ tab and proceed.
- Select the evaluation 12 months. Within the ‘kind of cost’ field choose ‘Advance Tax (100)’ and click on on proceed to proceed.
- Right here you’ll must fill in just a few particulars like tax, surcharge, cess, curiosity, and others. Fill them precisely and click on proceed.
- Select your most well-liked mode of cost from debit card, NEFT, RTGS, and web banking.
- You’ll lastly land on a abstract web page the place you’ll be able to overview your particulars. Confirm them and when you’re happy, press pay now.
- That’s it! The subsequent display screen ought to present you an acknowledgement containing the BSR code and challan quantity. It’s best to save a duplicate as you’re going to wish it later on the finish of the 12 months when submitting returns.
Conclusion
In case your tax legal responsibility exceeds Rs. 10,000 it’s essential to pay advance tax in installments all year long. In case you estimate your gross taxable earnings after subtracting TDS and reduction exceeds this quantity, you can also make acceptable funds earlier than the deadlines specified by the federal government. Delays and non-payment of advance tax may end up in curiosity penalties.
Since an inexpensive estimate of your tax legal responsibility is essential, you must use a tax calculator 2024-25 up to date with the most recent earnings tax slab charges to find out it. You should use our free on-line tax calculator to make sure accuracy. The beginning of the monetary 12 months is a superb time to start tax planning because it provides you ample time to create tax-saving methods.
Because the monetary 12 months 2025-26 approaches, why not give our specialists an opportunity? Our funding planner will make sure you obtain personalised tax-saving recommendation on investments, insurance coverage, and loans. We additionally ensure you precisely and well timed file your returns and adjust to the most recent tax rules. Get in contact with our advisors at this time!