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Advance tax – Income tax Act 1961

Advance Tax – Income Tax Act. In this article, we are going to provide information about Advance Tax under Income Tax Act. The Concept Advance Tax means, income tax should be paid in advance instead of lump sum payment at the end of the year. It is also known as pay as you earn tax. These payments have to be made in installments as per due dates provided by the Income tax department. The details like What and who has to pay Advance tax etc are explained in the article.

Advance Tax

Advance Tax – Income Tax Act

The following is a clear cut explanation of Advance Tax concept:

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Also Read: Computation of pay as you earn Tax – Income Tax Act

What is Advance Tax?

Advance tax is the tax payable on total income of the year earned from different sources including salary, business, profession, rent, etc. The tax is supposed to be paid before the end of the financial year.

Advance tax is also known as ‘Pay as you earn’ scheme. The tax is payable if your tax liability exceeds Rs.10,000 in a financial year.The tax should be paid in the same year in which the income was received.

Who has to Pay Advance Tax

Salaried individuals need not pay advancetax as they already pay tax at source, the employer deducts the tax at source. Advance tax is applicable to individuals who earn income from sources other than salary. If a salaried individual earns income from other sources then they have to pay advance tax too.

Listed below are some of the income sources which attract advance tax:

    • Income received via capital gains on shares
    • Interest earned on fixed deposits
    • Winnings earned from a lottery
  • Rent or income earned from house property

How to Pay Advance Tax

Advance tax can be paid through tax payment challans at bank branches which are authorised by the Income Tax department. It can be deposited in authorised banks such as ICICI Bank, Reserve bank of India, HDFC Bank, Syndicate Bank, Allahabad Bank, State Bank of India and more.

Another way of paying advance tax is by paying it online through the Income Tax department or the National Securities Depository.

Advance Tax Calculation:

An individual can calculate advance tax on their own and determine if they have to pay advance tax.

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Listed below are the steps to calculate advance tax:

  • Determine the Income: Determine the income you receive other than your salary. It’s important to include any ongoing agreements that might pay out later.
  • Minus the Expenses: Deduct your expenses from the income. You can deduct expenses related to your work (freelancing) such as rent of the work place, travel expense, internet and phone costs.
  • Total the Income: Add up other income that you might receive in the form of rent,interest income, etc. Deduct the TDS deducted from your salaried income.
  • Total Advance Tax: If the tax due exceeds Rs.10,000 then you’ll have to pay advancetax.

How to Pay Advance Tax Online

The advancetax can be paid online through the online facility offered by the Income Tax department. Listed below are the steps that need to be followed to make a successful online payment for advancetax.

    • Go to the official Government website.
    • Select the right challan to pay your income tax ( Advancetax)
    • Fill in the correct details in the form. You’ll have to fill in details such as the right assessment year,address, phone number, email address, bank name, captcha code and other such important details.
  • Once you are done filling in the details, you’ll be redirected to the bank’s Net Banking page. The income to be paid should be rechecked in this page.
  • Next, you’ll get details of your payment including your challan number.
  • It is important to report your payment after you’ve made the payment. You can do so by adding an additional entry under the paid tax page.

Late Payment 

If an individual forgets to pay the advance tax by the first deadline, then the individual has to pay interest. The interest is computed as 1% interest on the defaulted amount for every month until the tax is paid off completely. The same interest penalty will be applicable if you don’t pay by the second or third deadline.

Advance Tax Schedule:

Listed below is the schedule for self employed and businessmen.

Installment Date Amount Payable
On or before September 15th Not less than 30% of the advance tax liability
On or before December 15th Not less than 60% of the advance tax liability
On or before March 15th 100% of tax liability

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