- 19-Apr-2025
- Healthcare and Medical Malpractice
In India, advance tax is a system under which taxpayers are required to pay their tax liability in installments throughout the year rather than paying the entire amount in a lump sum at the end of the year. This system is aimed at ensuring regular and timely collection of tax revenue by the government and to avoid a heavy burden on taxpayers at the end of the year.
Advance tax applies to individuals, companies, and other entities that are liable to pay tax and have an income above the taxable limit. The concept helps spread out the tax burden and enables taxpayers to manage their finances better.
Advance tax is the tax paid on income that is expected to be earned during the financial year.
Instead of waiting until the end of the financial year, the taxpayer is required to pay the tax in installments as per the estimated income for that year.
Section 208 of the Income Tax Act, 1961 requires that every taxpayer (except a few exemptions) who is expected to have a tax liability of ₹10,000 or more in a financial year must pay advance tax.
Advance tax is paid in installments, and the amount is calculated based on the estimated total income of the individual or entity for that year.
Individuals (including self-employed professionals and businessmen), corporates, partnerships, and HUFs (Hindu Undivided Families) are required to pay advance tax if their estimated tax liability exceeds ₹10,000 in a financial year.
However, Salaried Employees are generally exempt from paying advance tax, as their employers deduct tax at source (TDS) on their behalf.
The advance tax is to be paid in four installments during the financial year. The due dates for these payments are:
The calculation of advance tax depends on the estimated income of the taxpayer for the financial year.
The tax payable on that estimated income is calculated, and the taxpayer pays the tax in installments based on this amount.
Taxpayers can use online calculators or consult a tax professional to estimate their income and determine their advance tax liability.
The taxpayer has to pay advance tax in the aforementioned installments based on their expected income for the financial year.
This helps spread the financial burden over the year and ensures that taxpayers are not faced with a large tax bill at the end of the year.
By paying advance tax, taxpayers can avoid paying interest under Section 234B and Section 234C for late or non-payment of taxes.
If the taxpayer fails to pay advance tax or pays it in the wrong installments, they may be liable for interest charges on the unpaid tax amount.
The government receives a steady cash inflow throughout the year, which helps in budgeting and managing public finances effectively.
Paying taxes in installments eases the financial burden on taxpayers. They don’t have to worry about paying a large sum of tax at the end of the year.
Advance tax provides the taxpayer with a structured and planned way to fulfill tax obligations, thus making it easier to plan finances.
If a taxpayer does not pay advance tax or pays less than the required amount, they will be liable to pay interest under Section 234B. This is a penalty for underpayment or non-payment of taxes.
The interest charged is 1% per month on the amount of tax payable, starting from the 1st day of the assessment year till the date the tax is paid.
If the taxpayer fails to pay the advance tax by the due dates, interest under Section 234C will be charged.
The interest is calculated based on the difference between the amount of advance tax that should have been paid by the due date and the actual amount paid.
Salaried employees do not need to pay advance tax, as their employers deduct TDS (Tax Deducted at Source) on their behalf, based on the salary paid.
If a person’s estimated total tax liability for the year is below ₹10,000, they are not required to pay advance tax.
Agricultural income is exempt from income tax, and it is not considered when calculating the requirement for advance tax.
Let’s say Mr. Kumar, a self-employed individual, estimates his total tax liability for the financial year at ₹50,000.
Advance tax is a method of paying taxes in installments throughout the financial year. It applies to individuals, businesses, and corporations with a tax liability of ₹10,000 or more. The system ensures that taxes are paid regularly, easing the financial burden on taxpayers and helping the government manage cash flow efficiently. Taxpayers who fail to pay advance tax on time may face penalties and interest charges. It’s an important aspect of tax planning and compliance under the Income Tax Act.
Answer By Law4u Team
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