In the Indian tax system, individuals are required to pay taxes on their income by law and it is calculated based on various tax slabs that the individual’s income is.
Income tax provides the government with a steady revenue stream to fund various public services and infrastructure development.
To help the individual finances, the government provides an option to pay the taxes in installments and this practice is known as Advance tax payments.
Advance Tax is a system that requires individuals to pay their income tax liabilities in installments throughout the financial year, instead of paying it all at once during the annual filing season.
It is a proactive approach to taxation, enabling individuals to meet their tax obligations in a phased manner instead of single payments.
By implementing Advance Tax, the Indian government aims to ensure regular cash flow, enhance tax compliance, and reduce the burden on taxpayers.
It allows individuals to plan their finances effectively and prevents the accumulation of a significant tax liability that might otherwise strain their financial resources of the individual.
Proper knowledge of Advance Tax enables taxpayers to plan their income, expenses, and investments more efficiently, optimizing their tax liability and maximizing savings. In this article, we will delve into the Advance Tax, calculation methods, due dates, benefits, etc.
Benefits of Advance Tax
Advance Tax payment comes with a lot of benefits and many individuals especially those who pay more taxes can take benefits out of it. The following are the benefits of Advance Tax-
- By paying taxes in advance, individuals can avoid the stress and financial burden of making a lump sum payment at the end of the financial year. It helps in spreading out the tax liability over multiple installments, reducing the strain on personal finances
- Advance Tax enables individuals to plan their finances more effectively. By paying taxes in installments, taxpayers can allocate their funds accordingly, ensuring a steady cash flow throughout the year. This allows for better budgeting, investment planning, and meeting other financial obligations
- Non-payment or underpayment of Advance Tax may attract interest charges under the Income Tax Act. By timely paying the required Advance Tax installments, individuals can avoid or minimize interest penalties, ultimately saving money and optimizing their tax liability
- Failing to pay Advance Tax or delaying the payments can result in penalties or legal consequences. By fulfilling their Advance Tax requirements, individuals maintain good tax discipline and avoid any potential penalties from the tax authorities.
- It provides an opportunity for tax planning, allowing taxpayers to explore various tax deductions, exemptions, and investment options to optimize their overall tax liability
Who will pay Advance Tax?
Not everyone in the tax system is liable to pay the Advance tax. The following are the criteria under which if you fall then you’ll have to pay the Advance tax-
- Taxpayers owing over Rs. 10,000 in taxes (after adjusting TDS) must pay advance tax.
- Applies to all taxpayers, including freelancers, professionals, salaried individuals, and senior citizens.
- Senior citizens aged 60+ without a business are exempt from advance tax.
- Taxpayers under Section 44AD pay full advance tax by 15 March (can pay by 31 March).
- independent professionals like architects, doctors, lawyers, consultants, etc. under Section 44ADA pay full advance tax by 15 March (can pay by 31 March).
How to Calculate Advance Taxes?
You can follow these steps to calculate the advance taxes-
- Determine your expected total income for the financial year, considering all sources such as salary, business income, capital gains, and other taxable income.
- Now, deduct allowable deductions, exemptions, or tax-saving investments from your total income to arrive at the taxable income
- Determine the applicable tax rate based on the income slabs and tax rates
- Now, you’ll have to calculate the tax liability by multiplying the taxable income by the applicable tax rate to calculate your estimated tax liability for the financial year
- After that, divide the estimated tax liability into installments as per the prescribed due dates and percentage of payments.
- After that, you’ll have to pay the tax as per online on the official website of Income-tax or you can take help from a Chartered Accountant to do so
Due date for Advance Tax Payments for Corporate and Individuals
The following are the due dates for the individual and corporate in the financial year 2023-24 under which you’ll have to pay the liable taxes-
Tax Advance Payment for Companies
| Due Date of Tax Instalments | Amount of Tax Payable |
| Either on or before the 15th of September | At least 15% of the advance tax liability |
| Either on or before the 15th of December | At least 45% of the advance tax liability |
| Either on or before the 15th of March | At least 75% of the advance tax liability |
| Either on or before 15th of March | 100% of tax liability |
Tax Advance Payment for Business Owners and Self-employed
| Due Date of Tax Instalment | Amount of Tax Payable |
| Either on or before 15th of September | At least 30% of the advance tax liability |
| Either on or before the 15th of March | At least 60% of the advance tax liability |
| Either on or before 15th of March | 100% of the advance tax liability |
FAQ
No, senior citizens who have taken retirement do not need to pay taxes. if he/she falls under the tax bracket and still earns business income then yes, they may have to pay taxes but subsidized.
Advance Tax is calculated based on the estimated tax liability for the financial year, divided into installments as per prescribed due dates.
Non-payment or late payment of Advance Tax may attract interest charges and penalties as per the Income Tax Act.
No, Advance Tax payments cannot be revised once made. However, any excess or shortfall in payment can be adjusted in subsequent installments.
If you have overestimated your Advance Tax payment, any excess amount will be refunded to you during the regular income tax return filing process.
Yes, individuals can make voluntary Advance Tax payments to reduce the tax burden at the end of the financial year and avoid interest charges.
Yes, if you have paid excess Advance Tax, you can claim a refund by filing your income tax return by providing the necessary details.
