What is Advance Payment of Tax?

Income Tax that is paid well in advance before the end of the financial year instead of paying the lump sum amount at the end of the financial year is called Advance Payment of Tax. This system is also popularly known as pay-as-you-earn. The Advance Tax is payable if your tax liabilities are more than

Rs.10,000 in a financial year. 

If you have some sources of income other than your salary like rent, fixed deposits, capital gains from shares, etc. then you are liable to pay your Advance Tax, which can be paid online or through Tax Payment Challans available at the banks authorised by the Income Tax Department. 

Since you know what do you mean by advance payment of tax, it’s time to advance tax calculation:

First of all you have to calculate your total income. Total income includes the rent you receive or the income you receive from other sources like freelancing or coaching etc.

Now deduct the expenses from your income. Expenses can be the rent, travel expenses etc. also deduct the TDS which has already been deducted from your salary. 

Now, calculate the Tax, if it is more than ₹10,000, then you are required to pay the advance tax. If your tax liability is

₹1 lakh, then you will pay the advance tax as follows:

• You have to pay at least 15% of your tax liability on or before 15th June.

• 45% of the Tax Liability must be paid on or before 15th September. 

• 15% must be paid on or before 15th December.

• The rest of the 25% must be paid by 15th March of each financial year.

• Amount of Advance Tax is subject to change according to the income of the taxpayer.

It is to be noted that Advance Tax may vary depending on your income for that financial year. In case you have paid more than your liability, it will be refunded with 6% interest but if you have paid less than 90% of the required amount, you will be charged 1% interest on the defaulted amount for every month until you pay off the tax completely. 

So, it is advisable that you pay the advance tax in time without default. I hope now you know what is advanced payment of tax and when it is paid.