Advance tax is a system of paying income tax in advance, as and when the income is earned, rather than paying it all in a lump sum at the end of the financial year. Under this system, taxpayers are required to estimate their income for the current financial year and pay taxes in installments, which are due on specific due dates.
Advance tax is applicable to all taxpayers, including individuals, Hindu Undivided Families (HUFs), partnership firms, companies, and other entities that are liable to pay income tax. It is usually payable in three or four installments, depending on the nature and size of the taxpayer's income.
The due dates for advance tax payments are as follows:
On or before 15th June: 15% of the estimated tax liability
On or before 15th September: 45% of the estimated tax liability, less the tax paid in the first installment
On or before 15th December: 75% of the estimated tax liability, less the tax paid in the first two installments
On or before 15th March: 100% of the estimated tax liability, less the tax paid in the first three installments
It is important to note that non-payment or delayed payment of advance tax may attract interest and penalties. In case of underestimation of income, taxpayers may also be required to pay a penalty under section 234B and 234C of the Income Tax Act, 1961.
To calculate advance tax liability, taxpayers need to estimate their income for the current financial year and deduct the applicable deductions and exemptions. The remaining income is then subject to tax at the applicable rates. Taxpayers can use the advance tax calculator available on the Income Tax Department's e-filing portal to calculate their advance tax liability.
In conclusion, advance tax is an important aspect of income tax compliance that helps taxpayers manage their tax payments in a timely and efficient manner.