As the filing of return countdown has started so we thought to untwist the term Advance Tax for Taxpayers. There are so many questions hovering in your mind that whether Advance Tax applicable on you when you have to pay advance tax, what is the proportion of advance tax and much more. Lets untwist these questions piece by piece.
Advance tax is simply as the name implies, pay your taxes in advance as you start earning instead of the lump sum payment in the end of the financial year.
You must be trying to find out the logic behind the advance tax, let me just clear, if you think from government point of view then you will be able to figure out that the Government cannot wait until the end of the financial year to collect your tax, because Government also needs to run the economy every day, so it is difficult to wait for one cycle of financial year to collect your tax.
Advance tax is paid on the estimated income in a particular financial year like your salary. You can fairly estimate that how much salary you are going to get by the end of the year. But as you are aware that you get your salary after collecting deducting tax which is called TDS (Tax Deducted At Source), so in this case advance tax is taken care of by the TDS. Therefore, most of the time salaried people don’t need to worry about advance tax. Thus, we can say if you have any income other than salary then you must keep in mind the liability to pay the advance tax.
Threshold limit for Advance tax:
Advance tax liability arises only when your tax liability exceeds Rs 10,000, mark the word tax liability, not the total income. Which means that first you have to compute tax on your total income, and if the tax exceeds Rs. 10,000 then only you are required to pay advance tax.
Due dates to pay advance tax:
Advance tax is paid in installments by the due datesas prescribed under income tax laws. Below are the complete details payment of advance tax :
Payment of advance tax:
To calculate your advance tax you can visit on http://www.incometaxindia.gov.in/pages/tools/advance-tax-calculator.aspx
Consequences of not paying advance tax by due dates:
If you have paid extra tax than you are required to pay, then you can claim a refund of that extra amount.
So lets wrap up this Article by giving you tips that you should start computing your income to know whether you are liable to pay advance tax or not so that you don’t fall into the non-compliance pool.
Do I need to pay Advance Tax:
An individual company is prone to pay advance tax if he has financial gain from interest, commission, rent, business or profession,. Etc.on that no tax has been subtracted at source like TDS. Advance liabilities arises wherever the balance liabilities is Rs. 10,000/- or a lot of it. If you are salaried person with solely regular payment as the sole source of financial gain, advance tax wouldn’t be applicable as tax subtracted at supply ould be taken care of by the person who has hired you. If you have got different sources of financial gain, such as, financial gains from capital gains, shares and mutual funds, financial gain from house property, etc. Advance tax is obligatory.
How to calculate Advance Tax:
- Estimate your freelancing income: add the expected financial gains from your client. If you have got in progress agreements that lay out payment terms, use those for estimating your income.
- Subtract expenses: from this financial gain you are allowed to scale back expenses that are directly associated with the freelancing work. Rent of your work, internet, telephone prices, depreciation of computers, travel expenses etc.
- Add up all different income: add expected financial gain from alternative heads like house property, interest financial gain, etc.
- If the remaining tax exceeds Rs. 10,000/-, you are required to pay advance tax.
Paying Advance tax is important as failure to pay it would lead you to be penalized. It is important that you should hire a trusted tax consultant to help drive out the myths and build a strategy to best protect the company.
BIATConsultant is leading Chartered Accountancy consultancy firms delivering expert advice since 2004 .