Under the Income Tax Act 1961, several provisions deal with taxation and lay down regulations for taxpayers. One of the common phenomena of taxation is the “Computation of Advance Tax”, which can be referred to as a pay-as-you-earn scheme. At the start of a Fiscal Year, eligible taxpayers pay out taxes to the authorities, and such taxable payment is made in four installments in the same fiscal year. Advance Tax has so many benefits for taxpayers as it reduces the total tax amount paid in an Assessment Year. Before you are about to make further delays, it is time to learn about advance tax computation, meaning, liability, etc.

What is Advance Tax?

Taxpayers whose income exceeds the basic threshold limit have to pay advance tax four times a year. It reduces the lump sum burden of paying taxes on the taxpayers and facilitates the government to raise revenue. You may doubt what happens when the overall tax liability by the end of a financial year is less than the total advance tax paid. In such a case, the taxpayer receives refunds.

Advance taxpayers have to follow a method, based on which they need to make the payment to the authorities. A minimum of 15% of the estimated tax liability is to be paid by the 15th of June, whereas the 45% is to be cleared by the 15th of September. Taxpayers must clear 75% of the total estimated tax liability by the 15th of December and the overall by the 15th of March. As the FY comes to its end, the taxpayer has cleared the tax liability.

Who Must Pay Advance Tax?

Each taxpayer, including non-resident Indians with an estimated tax liability of Rs 10,000 or more, has to pay advance tax. The following are liable for paying the tax

• Businesses under the “presumptive taxation scheme” under section 44AD are allowed to pay advance tax
• Freelancers can also pay advance tax if their total tax liability exceeds Rs 10,000 in a financial year
• Salaried individuals meeting the same threshold of Rs 10,000 total tax liability
• Self-employed professionals like lawyers, doctors, architects, etc., can pay advance tax in case they are outlined in the presumptive taxation scheme under section 44ADA

Advance Tax Computation

To compute advance tax, you must follow the steps. Though computing the exact amount of advance tax is something that is to be done by professionals, you can follow the steps below to compute it to the right extent

Step 1: First of all, consider all the options for earnings like capital gains, interest, rent, professional income, business, etc., and then calculate the total possible annual income, based on which, you will be able to compute advance tax.

Step 2: Consider salary income while computing advance tax, though you must note that no advance tax is payable on the salary component. It just influences the tax rates.

Step 3: Now, calculate the payable tax amount as the latest applicable slab of the Income Tax Forms Under Income Tax. Just subtract the TDS amount deducted or the prospective TDS that you are going to pay later in the financial year.

Step 4: pay it out according to the applicable norms and make sure that you have cleared the advance tax payment by the end of the financial year. Try to compute it in the right way, if unable, and end up calculating higher or lower than the actual. In such a case, do not worry, you can clear the left-out amount if the advance tax is lower than the actual tax. If the advance tax is higher than the actual liability, you can claim refunds.

Process to Calculate Advance Tax?

1. Income tax on estimated total income- relief under section 87A = income tax after relief u/s 87A
2. Tax liability = income tax after relief u/s 87A+ surcharge on the estimated income
3. Total tax liability = tax liability+education cess+SHEC
4. Advance tax =  total tax liability- relief other than u/s 87A-TDS

Benefits of Paying Advance Tax

Paying advance tax can help you reduce your tax worries and allow you to pay the taxes in installments rather than in one lump sum. It facilitates organizing the taxes effectively and keeps an eye on the finances. To boost public revenues, the government utilizes the advance tax structure effectively. Failing to comply with advance tax payment, taxpayers have to bear penalties and fines as per the case. The process to compute exact advance tax payment is rigorous and not handy to do for the commoners; therefore, hire a tax professional for yourself so that you can work closely with expert guidance and meet your liabilities.