How Does Advance Tax Work?

If you are a taxpayer, then you must have heard the term ‘Advance tax’. In this article, we will provide you with complete information on what advance tax is and how it works. So, let’s get started!

As the name suggests, an advance tax is the amount of the income tax that is required to be paid in advance. The tax is payable only if your tax liability is more than Rs 10,000 in a financial year. The payments in advance tax have to be made in instalments as per the due dates provided by the Income Tax Department.

The following people are required to pay the advance tax: 

1. Presumptive Income For Businesses: The taxpayers who have opted for the presumptive taxation scheme under section 44AD are required to pay the complete amount of their advance tax in one instalment before 15 March. The taxpayers falling in this category also have an option to pay all of their tax dues by March 31.

2. Presumptive Income For Professionals: The taxpayers who are independent professionals like doctors, and lawyers and come under the presumptive scheme under section 44ADA are required to pay the complete amount in one instalment on or before March 15. The taxpayers falling in this category also have an option to pay all of their tax dues by March 31.

3. Salaried, Freelancers And Businesses: If you’re a salaried person, a freelancer, or a businessman, and your total tax liability is Rs 10,000 or more in a financial year, you’ll be required to pay advance tax. However, senior citizens who do not run a business are exempt from paying advance tax. 

If you want to calculate your advance tax, you need to visit the Income tax department’s official website and use their calculator. However, let’s help you with an example. Let’s assume that your tax liability is Rs. 1lakh, then you will be required to pay:

1. On or before 15 June: Minimum 15% of Advance Tax

2. On or before 15 September: Minimum 45% of Advance Tax-Advance Tax already paid

3. On or before 15 December: Minimum 75% of Advance Tax-Advance Tax already paid

4. On or before 15 March: 100% of Advance Tax-Advance Tax already paid

There are a few benefits of paying advance tax:

• Advance tax eases the stress of taxpayers because it is paid in advance and instalments. 

• It helps speed up the tax collection process. 

• It saves people from defaulting on their tax payments. 

• It helps businesses better manage their finance. 

• The advance tax also helps the government as it increases their funds and allows them to earn interest on the collected amount. 

You can pay the advance tax online via the official website of the Income Tax Department. We have provided a step-by-step to make the process easy:

Step 1: Head to www.tin-nsdl.com

Step 2: Click on services and from the drop-down select ‘epayment: Pay Taxes Online’.

Step 3: Select the challan to pay the tax.

Step 4: Now, it will ask for certain details like phone number, address, right assessment year, email address, etc. Fill out the form carefully. 

Step 5: Now, it will redirect you to the net banking page.

Step 6: Once done, you’ll receive payment details.

Step 7: Do not forget to report your payment.

In summary, Advance tax helps in keeping track of your income and expenses. It is a good way to plan your finances, understand how much tax you will be paying, and so on.