Advance Tax

What is advance tax?

Normally the tax liability arises only at the end of financial year for the income earned during the financial year (i.e) from 1st April to 31st March.

But when your tax liability exceeds a limit (currently it's Rs.10,000), then you have to pay tax in advance in installments.

If your tax liability is below Rs.10,000, then you need not pay tax in advance.

If you ask, "Why the Government is asking us to pay tax in Advance?" the answer is simple.

  • Revenue generation throughout the year.
  • Instead of waiting for a whole year, Government gets the revenue earlier.
  • The Taxpayer also will not feel the burden in entirety.

The each instalment of the Advance Tax is to be paid as a percentage of the total tax liability estimated for the financial year.

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Advance Tax Payment Due Dates

Rate Date
15% 15th June
45% 15th September
75% 15th December
100% 15th March

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How to Calculate Advance tax Liability?

You have to estimate your total income. The total income includes,

  1. Salary Income,
  2. House Property Income,
  3. Capital Gains,
  4. Business Income, and
  5. Income from other sources.

Once, you calculated the total income (projected) for current financial year, you have to calculate your tax liability based on the tax rates announced for that Financial year.

If the tax liability exceeds Rs.10,000, then you are liable to pay "Advance-tax".

For calculating the tax liability, the estimated TDS/TCS (deducted & to be deducted by others) are to be reduced.

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Advance-tax Calculation Example

Scenario 1 - Individual with Business Income 

Let's assume you own a business, and your estimated annual taxable business income for this FY 2021-22 as Rs.6,00,000.

If you are assessed as an Individual, your tax liability would be Rs.33,800. Tax liability exceeds the limit Rs.10,000. You have to start paying your Advance-tax from June-2021.

Period Liability Cumulative
April 1, 2021 to June 15, 2021 5,070.00 5,070.00
June 16, 2021 to September 15, 2021 10,140.00 15,210.00
September 16, 2021 to December 15, 2021 10,140.00 25,350.00
December 16, 2021 to March 15, 2021 8,450.00 33,800.00

Scenario 2 - Individual with Professional Income and House Property Income

Mr.Pro works as a professor in City Medical College & earns salary of Rs.50,000 per month. He provides consultation at his own clinic and the average monthly Income is around Rs.50,000 and incurs around Rs.20,000 p.m. towards expenses. In addition he owns a residential house & earns rental income of Rs.30,000 per month, for which he pays Municipal Tax of Rs.3,000.

After deducting all the deductible expenses, the net taxable income comes to around Rs.11,59,900. Then his tax liability would be Rs.1,66,889. He can adjust the Salary TDS paid, say Rs.50,000. Hence, his net tax liability would be Rs.1,16,889.

Then he has to pay the Advance-tax in 4 installments as given below.

Period Liability Cumulative
April 1, 2021 to June 15, 2021 25,033.00 25,033.00
June 16, 2021 to September 15, 2021 50,067.00 75,100.00
September 16, 2021 to December 15, 2021 50,067.00 1,25,167.00
December 16, 2021 to March 15, 2021 41,722.00 1,66,889.00

Scenario 3 - Individual with Income from Salary and Capital Gains

Mr.M is a salaried employee. Other than salary he has no other income. He sold his residential plot for Rs. 75,00,000, on 08-May-2021. He incurs long term capital gains of Rs.58,64,583, for the FY 2021-22. The tax @ 20% and including Surcharge and Education Cess would be Rs.12,84,617..

Mr.M has to pay Advance-tax on capital gains as given below. (in addition to tax liability related to salary)

Period Liability Cumulative
April 1, 2021 to June 15, 2021 1,92,693.00 1,92,693.00
June 16, 2021 to September 15, 2021 3,85,385.00 5,78,078.00
September 16, 2021 to December 15, 2021 3,85,385.00 9,63,463.00
December 16, 2021 to March 15, 2021 3,21,154.00 12,84,617.00

In case the asset was sold on 10-Oct-2021, then the Long Term Capital Gains and Tax Liability would remain same. However, the Advance-tax payment would arise as under: -

Period Liability Cumulative
April 1, 2021 to June 15, 2021 0 0
June 16, 2021 to September 15, 2021 0 0
September 16, 2021 to December 15, 2021 9,63,463.00 9,63,463.00
December 16, 2021 to March 15, 2021 3,21,154.00 12,84,617.00

That is, you are not expected to pay the first two installments of the advance tax, since the sale happens only thereafter (impossibility in performance is excused). However, you are expected to pay the tax liability in the future applicable installments.

Scenario 4 - Domestic Company

AB Pvt Ltd., has taxable income of around Rs.25,00,000. The Tax liability would be Rs.6,50,000. TDS is Rs.3,45,000. Then it has to pay the Advance-tax  of Rs.3,05,000 as given below.

Period Liability Cumulative
April 1, 2023 to June 15, 2023 45,750.00 45,750.00
June 16, 2023 to September 15, 2023 91,500.00 1,37,250.00
September 16, 2023 to December 15, 2023 91,500.00 2,28,750.00
December 16, 2023 to March 15, 2023 76,250.00 3,05,000.00

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