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All About Advance Tax in Detail

August 28, 2018


Citizens of the country are liable to pay tax on the income earned under the Income Tax Act, 1961. Income earned in the financial year is assessed in the next year, known as Assessment Year. However, though the income is assessed in the Assessment Year, taxes are generally paid in advance through Tax Deduction at Source (TDS) or advance tax.

Understanding advance tax

Advance tax is a form of income tax that is payable in case your tax liability exceeds INR 10,000 for a particular financial year. This tax must be paid by the taxpayers in the same year the income is received. For this purpose, advance tax is also known as 'pay-as-you-earn' scheme.

For example, in case your tax liability for the financial year 2017-18 is more than INR 10,000, you are required to pay advance tax in the same year, i.e. 2017-18. The main purpose of levying an advance tax in the same year rather than at the end of the year is to ensure that the government receives a constant flow of income throughout the year. This helps them meet expenses easily.

Who pays advance tax?

Salaried individuals do not have to pay advance tax as employers generally deduct the tax at source. Advance tax is, therefore, levied on individuals who have sources of income other than salary. This includes income that is received through capital gains on shares. You are also required to pay advance tax on interest earned through Fixed Deposits (FDs), rent received from house property, as well as winnings earned through a lottery. You may note that self-employed individuals, businessmen, companies, and corporates too need to pay advance tax.

The process of filing advance tax

Certain bank branches are authorized by the Income Tax Department to collect advance tax through tax payment challans. Some banks, which collect advance tax include Reserve Bank of India, HDFC Bank, Allahabad Bank, ICICI Bank, and State Bank of India, among others. You may also pay advance tax through the internet, either through the Income Tax Department or National Securities Depository Ltd. (NSDL).

Advance tax calculation

With the help of an income tax calculator, you may determine the amount of tax to be paid. Alternatively, you may follow the below-mentioned steps to ascertain the amount of advance tax to be paid.

  1. Determine your total income earned through various sources other than salary.
  2. Deduct all related expenses such as internet costs, phone bills, travel expenses, and rent of the workspace, among others.
  3. Sum up other income received through the year. This may include income from FDs, house rent, and lottery earnings, besides many others.
  4. In case the calculated tax amount is higher than INR 10,000, you are liable to pay advance tax.

It is important to note that failure to pay advance tax by the stipulated deadline attracts a penalty. You may, therefore, do your due diligence and pay your taxes on time.

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