Many people assume tax filing and payment are the same, done once a year, but that’s not true. Taxes need to be paid as and when the income is earned. This requirement is fulfilled in the form of TDS (Tax Deducted at Source) for incomes like salary but for other incomes where TDS is not applicable, advance tax needs to be paid.
For all investors and traders, knowing about advance tax becomes very important as no TDS is appliable on capital gains and business income that they earn.
What exactly is advance tax?
As the name implies, advance tax involves paying your taxes ahead of time by estimating your yearly tax liability. These payments are divided into four instalments, one for each quarter.
Advance tax benefits both the taxpayer and the government. It provides the government with a consistent flow of income to manage its expenditures, while also helping taxpayers avoid the stress of paying a large lump sum at the end of the financial year.
Applicability of advance tax
If the estimated tax liability for the year exceeds ₹10,000, you must pay advance tax. The total tax payable includes income from all sources i.e. salary, interest, business, capital gains, freelancing etc. after considering TDS if any.
However, there are a few exceptions,
Senior citizens: Senior citizens (above 60 years) who do not have income from business or profession are exempt from paying advance tax.
Presumptive Taxation Scheme: For taxpayers who have opted for the Presumptive Taxation Scheme under sections 44AD & 44ADA, the advance tax can be paid in one instalment on or before 15 March of the relevant year.
Salaried Individuals: Salaried individuals usually don’t have to pay advance tax if the employer deducts TDS appropriately. However, if the individual has additional income from sources like capital gains, rent, or interest, advance tax may be applicable.
Advance tax due dates for FY 2024-25
Advance tax has to be estimated and paid in 4 instalments:
| Due Date | Advance Tax Payment |
|---|---|
| On or before 15th June | At least 15% of tax liability |
| On or before 15th September | At least 45% of tax liability |
| On or before 15th December | At least 75% of tax liability |
| On or before 15th March | 100% of tax liability |
How is advance tax calculated?
One needs to first estimate their annual income and determine your tax liability. Here’s how you do it.
- Add up income from all sources like rent, business, interest etc. that you expect to earn during the year.
- Calculate the total tax liability.
- Tax on salary, rent, business and other source incomes will be calculated as per slab rates.
- Tax on capital gains is will be calculated as per applicable special rates (example, 12.5% for LTCG from stocks and equity MFs)
- From the total tax liability deduct the TDS that has already been deducted on your salary or even interest income.
- Pay the balance tax liability in instalments as specified in the table.
We’ve covered more details in this video: Calculate and pay advance tax
If you have any questions related to advance taxes, you can ask them in this thread:)