What is advance tax? As the name suggest advance tax is the tax that is paid in advance for the income of a particular financial year. The normal belief is that taxes are to be paid only when you are earning an income but under the tax provisions, the tax payer has to actually estimate the income for the entire year and based on this pay advance tax at specific time intervals.
There are separate schedules for individuals and corporate offices for the advance tax payment. For an individual, the first stage consists of estimating the income for the year and the tax that will have to be paid on this. After this by 15 September 30% of the tax for the year has to be paid. The figure goes to 60% of the tax by December 15 and then 100% of the tax by March 15 of the financial year. Thus for example if the tax for the year is estimated at Rs 40,000 in December then Rs 24,000 has to be paid by the 15th of the month. It could be that due to higher income the tax payment estimate could go up to Rs 50,000 by March so by this time the remaining Rs 26,000 would have to be paid. Whereas for the corporate offices, the payment structure is different, they need to pay 15% of the tax for the year by every 15th June. The figure goes to 45% of the tax by 15th September and then 100% of the tax by 15th March of the financial year.
Payment has to be done only under certain circumstances; you need to pay advance tax only when the advance tax payable is Rs 10,000 or more during the year. This may be a loophole but the way in which it functions is that the calculation needs to be done and if the tax shortfall is Rs 10,000 or more than it will trigger the advance tax provisions. If the tax to be paid is less than 10,000 then there is no need to pay advance tax.
It is important to note that in the entire cycle, the existing tax deduction at source will have to be reduced from the estimated tax liability to confirm whether the requirement of the advance tax is triggered or not. Thus, there could be a situation where a person has to pay Rs 1.2 lakh of tax on his estimated income for the year but if the entire amount is already being deducted at source then there is no need to make any advance tax payment. In another case where the tax to be paid is Rs 15,000 for the year but no amount is deducted at source then the advance tax requirements will have to be met.
By Udyog Software Marketing Team