Filing your income tax return can be super stressful. You have to plough your way through bank statements, salary slips, and other documents to gather all the information, organize it, and then fill out those forms. Plus, the income tax amount can seem overwhelming.
The simplest solution is to make advance tax payments. Read on to find out how advance income tax payment can make life easier.
What is Advance Tax?
Remember the saying, “take it one step at a time?” Advance tax is like that. So, rather than paying your income tax as a lump sum at year-end, income tax advance tax lets you pay your taxes in instalments across the financial year, on specified due dates. Think of it as a tax that you pay as you earn. This tax must be paid in the same fiscal as the financial year during which the income is received.
Who Should Pay Advance Tax?
If you estimate your tax liability to be above Rs. 10,000 after accounting for TDS (Tax Deducted at Source) in a financial year, you are eligible to pay advance tax.
Income from salary, business, freelance assignments, consultancy, professional services, rent, shares, fixed deposits, and capital gains attracts advance tax. Corporate entities, Partnership Firms and LLPs, and Non-Resident Indians are also eligible. Income tax advance tax payment is not applicable to senior citizens aged above 60 but only if they do not have a business income.
Also read: From TDS to Self-Assessment Tax – Your Complete Guide!
Calculating Advance Tax Liability
When calculating your advance tax, estimate only your yearly income. Consider what you earn, the tax already taken from it, and the investments you've made. The advance income tax payment is based on this estimated total income.
These four steps will simplify it for you:
1. Make an estimate of the total income you’ve earned from all sources, from 1st April- 31st March of the financial year.
2. Subtract all eligible expenses and deductions from that income, such as medical insurance premiums, phone costs, travel expenses, etc.
3. Now, compute tax on such Income as per the tax regime opted by you.
4. Deduct the TDS/TCS from that amount.
If the amount of tax calculated is more than 10,000, then you are liable to pay advance tax.
Here is an example:
Sneha, a digital marketing consultant, expects an annual income of Rs 20,00,000 for FY 2023-24. Her estimated expenses are Rs 12,00,000. She has invested Rs 40,000 in a PPF account, paid Rs 25,000 for life insurance, and Rs 12,000 for medical insurance. She expects a TDS of Rs 30,000 on some professional receipts. Apart from that, she expects Rs 10,000 in interest from her fixed deposit.
Here is Sneha’s advance tax calculation.
INCOME ESTIMATION FOR ADVANCE TAX
| AMOUNT (Rs)
| AMOUNT (Rs)
|
Income from profession:
|
|
|
Gross receipts
| 20,00,000
|
|
Less: Expenses
| 12,00,000
| 8,00,000
|
|
|
|
Income from other sources:
|
|
|
Interest from fixed deposit
|
| 10,000
|
GROSS TOTAL INCOME
|
| 8,10,000
|
Less: Deduction under section 80C
|
|
|
Contribution to PPF
| 40,000
|
|
LIC premium
| 25,000
|
|
| 65,000
|
|
Deduction under section 80D
| 12,000
| 77,000
|
TOTAL INCOME
|
| 7,33,000
|
|
|
|
TAX PAYABLE
|
| 59,100
|
Add: Education cess @ 4%
|
| 2,364
|
|
| 61,464
|
Less: TDS
|
| 30,000
|
TAX PAYABLE IN ADVANCE
|
| 31,464
|
There’s another simpler way to do this. You can use IndiaFirst Life’s online Income Tax Calculator to estimate your tax liability.
Advance Tax Due Dates
The specified dates for advance tax filing are on or before 15th June, 15th September, 15th December and 15th March of the financial year in which the income is earned. You will be charged an interest of 1% monthly interest if you miss these dates.
Making Advance Tax Payments
There are two ways to make your advance income tax payment – physically at banks designated by the income tax department, or through the income tax department's tax payment website.
Paying advance tax online is the most convenient way if you follow these steps:
1) Click on the link https://www.incometax.gov.in/iec/foportal/
2) Make the payment and keep the advance tax filing challan you receive for your reference and ITR Filing
Documenting Advance Tax Payments
Once the Advance Tax is paid, it will be reflected on your Form 26AS. It is important to keep a record of all your challans and present them at the time of final income tax payment.
Paying your advance tax is crucial especially if you earn income from multiple sources. It eases the financial burden, helps maintain financial discipline, and ensures compliance with tax regulations. By estimating and paying tax periodically, you are in a better position to manage your tax liabilities and avoid last-minute stress and penalties.
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