Computation of Advance tax

Advance tax is a system of staggered payment of income tax by taxpayers on their estimated income during the financial year. It is also known as “pay-as-you-earn” tax.

Advance tax computation is a critical aspect of income tax planning and compliance. Timely and accurate calculation and payment of advance tax help taxpayers avoid penalties and interest charges. It’s important to stay updated with the latest tax laws and consult with tax professionals when needed for proper guidance on advance tax computation and payment.

Estimate Total Income:

• Sources of Income: Identify all sources of income, including salary, business income, capital gains, rental income, and other earnings.
• Deductions and Exemptions: Consider eligible deductions under various sections of the Income Tax Act to arrive at the net taxable income.

Calculate Tax Liability:

• Tax Slabs: Apply the applicable tax slabs to the estimated taxable income.
• Surcharge and Cess: Include surcharge and health and education cess, if applicable.

Compute Advance Tax Liability:

• Divide the estimated tax liability for the financial year into four installments as per the prescribed due dates.

Due Dates for Advance Tax Payments (For Non-Corporate Taxpayers):

• 15th June: 15% of the estimated tax liability.
• 15th September: 45% of the estimated tax liability.
• 15th December: 75% of the estimated tax liability.
• 15th March: 100% of the estimated tax liability.

For Corporate Taxpayers:

• Corporates generally need to pay advance tax in four installments: 15%, 45%, 75%, and 100% of the estimated tax liability by specific due dates.

Payment Modes:

• Online Payment: Use online modes like net banking to deposit the advance tax.
• Challan 280: Physically deposit the tax using Form 280 at designated bank branches.

Self-Assessment Tax:

• If there are any variations in income or deductions during the financial year, pay any additional tax as self-assessment tax.

Interest on Late Payment:

• Non-compliance with advance tax payment timelines may attract interest under Section 234B and Section 234C.

Filing Advance Tax Challan:

• Challan 280 is used for the payment of advance tax. Fill in the required details, such as PAN, assessment year, type of payment, and bank details.

Form 26AS Verification:

• Regularly check Form 26AS to verify the advance tax payments credited against your PAN. It reflects TDS, TCS, and advance tax payments.

Revised Estimates:

• If there are significant changes in income, revise the estimates and adjust subsequent advance tax payments accordingly.

Consult Professionals:

• For complex income scenarios or changes, seek advice from tax professionals to ensure accurate computation and compliance.