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Advance Tax: Everything You Need to Know

As a taxpayer, it’s essential to stay on top of your financial obligations and responsibilities, including paying your taxes. Advance tax is an integral part of tax payment that is often overlooked by many taxpayers. In this article, we will discuss everything you need to know about advance tax and how to calculate it.

What is Advance Tax?
Advance tax is the payment of income tax in advance, as opposed to paying it in one lump sum at the end of the financial year. It is a way for the government to collect tax revenue throughout the year rather than waiting until the end of the year. If your tax liability is more than Rs. 10,000 in a financial year, you are required to pay advance tax.

Who needs to pay Advance Tax?
Advance tax is applicable to all taxpayers, including individuals, self-employed professionals, and businesses. If your estimated tax liability for the year exceeds Rs. 10,000, you are required to pay advance tax. Failure to pay advance tax may result in a penalty of 1% per month on the unpaid tax amount.

When to Pay Advance Tax?
Advance tax is paid in installments throughout the financial year. The following table summarizes the due dates and the percentage of advance tax payable:

Due DateInstallmentAdvance Tax Payable
On or before 15th June1st InstallmentAt least 15% of the estimated tax liability
On or before 15th September2nd InstallmentAt least 45% of the estimated tax liability (less 1st installment paid)
On or before 15th December3rd InstallmentAt least 75% of the estimated tax liability (less 1st and 2nd installments paid)
On or before 15th March4th Installment100% of the estimated tax liability (less 1st, 2nd, and 3rd installments paid)

How to Calculate Advance Tax?
To calculate advance tax, you need to estimate your total income for the financial year and deduct any applicable deductions and exemptions. Once you have arrived at your taxable income, you can calculate your tax liability using the applicable tax rates. 

Let’s say you estimate your total income for the financial year to be Rs. 15 lakhs, and you have no applicable deductions or exemptions. Your tax liability, as per the current tax rates, would be as follows:

Up to Rs. 2.5 lakhs – Nil

Rs. 2.5 lakhs to Rs. 5 lakhs – 5% of the amount exceeding Rs. 2.5 lakhs

Rs. 5 lakhs to Rs. 10 lakhs – Rs. 12,500 + 20% of the amount exceeding Rs. 5 lakhs

Above Rs. 10 lakhs – Rs. 1,12,500 + 30% of the amount exceeding Rs. 10 lakhs

Based on the above tax rates, your estimated tax liability for the year would be Rs. 1,95,000. Using the table above, you can calculate the advance tax payable for each installment.

Conclusion
Paying advance tax is a crucial responsibility for every taxpayer. It helps ensure that you meet your tax obligations in a timely and efficient manner, avoid penalties, and plan your finances accordingly. By understanding advance tax and how to calculate it, you can stay on top of your tax payments and avoid any unnecessary stress or penalties.

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By Team WM

WealthMunshi Team comprises finance professionals, writers, editors, and subject matter experts dedicated to delivering accurate and reliable information on personal finance and wealth management. Our goal is to simplify complex financial concepts and industry jargon, making finance accessible to all. With relatable content and practical advice, we empower individuals to make informed decisions and achieve their financial goals. Trust us to provide comprehensive guidance on financial planning, investment strategies, tax optimization, and wealth preservation. Join us on this enriching financial journey and let WealthMunshi be your trusted partner in securing a brighter future.

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