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What Is Advance Tax and How Is It Calculated?

What Is Advance Tax and How Is It Calculated?
  • 29th Nov 2019 |
  • 4,156

If you have earnings apart from salary, then as per the income tax norms, you are liable to pay advance tax. You need to pay this tax on earnings received from lottery winnings, capital gains on shares, rent, and fixed deposits, among other sources. Advance tax in India is paid online or offline through specific banks.

Understanding advance tax

You need to have proper clarity behind the concept of advance tax. It is payable on the income earned during a year from various sources, which include salary (if the employer does not deduct the Tax Deducted at Source (TDS); and income from profession, business, and rent, among others. As the name suggests, an advance tax is a tax, which you need to pay beforehand. It has to be filed before the financial year is over. You need to pay this tax if your tax liability in a year is more than INR 10,000.

Are you eligible to pay advance tax?

If you earn income only from salary, and no other sources, you need not pay advance tax because the employer has already deducted the TDS. You are only liable to pay advance tax if you are a salaried taxpayer who is earning income from other sources along with your salary. Mentioned below are the sources of income that are liable for advance tax. These include:

  • Earnings received in the form of fixed deposit interest
  • Income from capital gain on sale of shares
  • Earnings from a lottery
  • Income or rent generated from a house property

Ways to file advance tax

You can pay advance tax by using tax challans in the branches of banks that are authorized by the Income Tax Department. You can deposit the challan at Syndicate Bank, ICICI Bank, State Bank of India, Allahabad Bank, HDFC Bank, and Reserve Bank of India, among other authorized banks. Alternatively, you can file ITR online on the official website of the Income Tax Department or the National SecuritiesDepository Limited (Tax Information Network section).

Steps to pay advance tax online

You can pay online advance tax through the digital facility offered by the Income Tax Department. Follow the below-mentioned steps to make an online payment.

  • Visit the Income Tax Department’s website
  • Choose the correct challan to pay the advance tax
  • Fill the form by providing details such as the year of assessment, phone number, residential address, email address, bank’s name and address, and captcha code
  • Go to the bank’s net banking page, that you will be directed to
  • Check the amount payable on the net banking page
  • Verify the details of the payment and the challan number
  • Report the payment by making an entry in the paid tax page

How to calculate advance tax?

You do not need a professional to calculate your advance tax, as you can do the needful independently. You just need to follow the below-mentioned steps:

  • Estimate the income
  • Calculate the income you receive except the earnings from salary. Also, include any agreements, which may be paid later.

  • Deduct the expenses
  • Subtract all your expenses from the income; these include work-related costs such as phone/Internet bills and travel costs, among others

  • Calculate the total income
  • Add up income, which you might earn from interest or rent; you need to deduct the TDS from your salary

  • Calculate the advance tax
  • In case your tax liability exceeds INR 10,000, you will be liable to make a payment for advance tax

Save Tax Now

Calculate advance tax –Example

Here is an illustration to help you understand the calculation of advance tax in a better manner. Aisha is a freelance fashion designer who earns income from her profession. She estimates her annual income at INR 10 lakh for the financial year. Her expenses are INR 3.75 lakh. She has invested INR 50,000 in Public Provident Fund (PPF) and has paid INR 25,000 towards the life insurance premium. She has an interest income of INR10,000 on fixed deposits.

Her tax liability will be calculated as INR 10 lakh minus INR- 3.75 lakh, which comes to INR 6.25 lakh. The income that she earned from fixed deposits will be added to the same, which takes her total gross earnings to INR 6.35 lakh. The investment in PPF and life insurance will be deducted to reach the net income of INR 5.6 lakh. She will fall into the slab of 5% on income of INR 3.1 lakh (INR 5.6 lakh minus -2.5 lakh) and the balance amount of INR 60,000(INR 5.6 lakh - 5 lakh) will be taxable at 20%. The tax amount will be INR 12,500 + INR 12,000. In addition, a cess of 4% will be applicable. The tax will be INR. 24,500 and cess is INR. 980. The tax payable on INR 5.6 lakh is INR 25,480.

She has to pay INR 3,822 (15% of total tax) on or before June 15, INR 11,466 (40% of the tax) on or before September 15, INR 19,110 (75% of the tax) on or before December 15, and INR 25,480 (100% of the tax) on or before March 15.

What will happen if you miss the deadline?

If you forget to pay your advance tax by the end of the first deadline, then you will have to pay interest. The interest will be computed as 1% on the defaulted amount for each month until the outstanding amount has been paid. If you do not pay by the second or third deadline, the same interest penalty will apply to you.

Due dates for advance tax payment

Given below is the schedule of advance tax for assesses (corporate and individual taxpayers) other than those covered under Section 44AD.

Due date Payable amount
June 15 15% of tax liability
September 15 45% of tax liability
December 15 75% of tax liability
March 15 100% of tax liability

Given below is the schedule of advance tax for assessees covered under Section 44AD and Section 44ADA. Section 44ADA is for presumptive taxation of profits from profession and applies to only those professionals whose gross annual receipts are below INR 50 lakh.

Due date Payable amount
June 15 -
September 15 -
December 15 -
March 15 100% of tax liability

As a responsible citizen, you must pay the advance tax before the due date to avoid any penalty and inconvenience.

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