Advance Tax Provisions in 2024 A Smart Taxpayer Guide

What is Advance Tax Provisions in 2024 A Smart Guide to Taxpayer

Advance Tax Provisions are the amount of tax you pay as you earn. Instead of paying it in a lump sum at the end of the year you can pay your tax liabilities in installments throughout the year. This is called advance tax.

What is Advanced Taxation?

Advance taxation refers to a structured system of payments that taxpayers must make during the year. This approach ensures a steady revenue flow for the government. It includes advance tax Tax Deducted at Source TDS Tax Collection at Source TCS and other tax mechanisms.

What is Advance Tax Meaning?

Advance Tax means businesses must pay ₹10,000 over the amount due in a year in four installments on specified due dates, which fall on June 15 September 15 December 15 and March 15. This system ensures a regular flow of revenue to the government. Non-payment may attract interest penalty under Sections 234B and 234C of the Act.

Advance Tax Provisions

What are the Benefits of Advance Tax? 

The benefit of advance tax helps the taxpayers to manage their tax liabilities better and thus, the financial operations become smooth for both them and the government.

1 Avoid Year-end Burden Spread the tax payments over the year thereby reducing the financial pressure of a lump sum payment at the end of the year.

2 Contribute to National Stability Your regular tax payments provide a steady revenue flow to the government, contributing to better financial management and planning for the nation.

3 Reduced interest liability When one pays advance tax on time it helps in avoiding short payment or delayed payment of taxes under sections 234B and 234C of the Income Tax Act.

4 Tax compliance Ensures that taxpayers comply with taxes and regulations and avoid legal hassles and penalties

5 Financial Planning Reforms It encourages taxpayers to keep accurate financial records and plan their finances more effectively throughout the year

6 Reduced year-end scrutiny Timely and regular tax payments reduce the chances of intensive scrutiny or audits by the authorities

What are the Difference Between TDS and Advance Tax?  

CriteriaTDS (Tax Deducted at Source)Advance Tax
NatureThe deduction is taken at the source of incomePaid directly by the taxpayer himself
ResponsibilityDeductions and deposits made by the payerPaid by the individual or entity earning the income
TimingDeducted at the time of paymentPayments made in installments during the financial year
ApplicabilityApplied to payments like salary, interest, rent, etc.Applicable to taxpayers with tax liability above ₹10,000
RatesPercentage as per the Income Tax ActCalculation based on projected income for the financial year
Due DatesAt the time of transaction or paymentJune 15, September 15, December 15, and March 15
Form of PaymentThe amount is paid by the payer and deposited with the governmentPaid directly to the government by the taxpayer
ExamplesSalary, interest payment, commission, rent, etc. are all includedSelf-Employed Professionals, Income Projecting Businesses

What is Advance Tax Due Dates AY 2024-25?

The due dates for payment of advance tax for assessment year (AY) 2024-25 are as follows

  1st Installment

  • Due Date On Before 15th June
  • Payment of 15% of the estimated tax liability

 2nd Installment

  • Due Date On Before 15th September
  • Payment of 45% of the estimated tax liability cumulative

  3rd Installment

  • Due Date On Before 15th December
  • Payment 75% of the estimated tax liability cumulative

 4th Installment

  • Due Date On Before 15th March
  • Payment 100% of the estimated tax liability cumulative

How to Calculate Advance Tax?  

Step 1: Total Income Estimate  Include all sources of income salaries business income interest rental income etc

Step 2: Apply deduction  Deduct deductions under sections 80C 80D etc.

Step 3: Calculate net taxable income Subtract deductions from your estimated income to determine your taxable income.

Step 4: Calculate Tax Liability Apply applicable income tax slab rates to your net taxable income.

Step 5: Deduct TDS/TCS Subtract any TDS or TCS already collected from your tax liability.

Step 6: Calculate advance tax payable If the remaining tax liability is ₹10,000 or more, then this amount is advance tax.

Pay in Installments

15th June 15% of total advance tax

15th September 45% of total advance tax (cumulative)

15th December 75% of total advance tax (cumulative)

15th March 100% of total advance tax (cumulative)

To be paid in installments

Advanced Tax Calculator?

Advanced tax calculator helps you estimate the tax liability for the financial year and determine the amount to be paid in advance.

Here is a Full guide on how to do it

StepDetailsCalculationAmount (₹)
1. Estimate Total IncomeSalary, Rental Income, and Other IncomeSalary: 8,00,000
Rental Income: 2,00,000
Other Income: 50,000
10,50,000
2. Deduct Allowable DeductionsDeductions under 80C, 80D, etc.80C (Investments): 1,50,000
80D (Health Insurance): 25,000
1,75,000
3. Compute Net Taxable IncomeTotal Income – Deductions10,50,000 – 1,75,0008,75,000
4. Calculate Tax LiabilityApply tax slabs to net taxable incomeTax Slabs:
Up to ₹2,50,000: Nil
₹2,50,001 to ₹5,00,000: 5%
₹5,00,001 to ₹10,00,000: 20%
Above ₹10,00,000: 30%

Tax Calculation:
5% on ₹2,50,000 = ₹12,500
20% on ₹3,75,000 = ₹75,000
Total Tax = ₹12,500 + ₹75,000
87,500
5. Subtract TDS/TCSTax deducted at the sourceTDS on Salary: ₹50,000
TDS on Other Income: ₹10,000
60,000
6. Determine Advance Tax PayableTax Liability – TDS87,500 – 60,00027,500

How Advance Tax Interest Calculation?

Under Section 234B and 234C of the Income Tax Act interest is levied on advance tax if the payment is made fresh. The method of calculating the interest is given below.

Section 234B Interest on default in payment of advance tax is less than 90% of the advance tax assessed

Section 234C Interest on deferral of advance tax. This is applicable when the advance tax paid till the due date is less than a specified percentage of the total advance tax payable.

Interest Calculation

Interest under Section 234B

  • Shortfall Amount: ₹25,000
  • Number of Months: 12 (April to March)
  • Interest: ₹25,000 × 1% × 12 = ₹3,000

Interest under Section 234C

  • Total Interest: ₹150 (June) + ₹900 (September) + ₹1,650 (December) = ₹2,700

Total Interest Payable

  • Section 234B ₹3,000
  • Section 234C ₹2,700

Total Interest Amount ₹3,000 + ₹2,700 = ₹5,700

interest TypeShortfall AmountInterest RateMonthsInterest Amount

Section 234B ₹25,000 1% 12 ₹3,000

Section 234C ₹5,000 (June) + ₹30,000 (September) + ₹55,000 (December) 1% 3 months each ₹2,700

Total Interest ₹5,700

Interest TypeShortfall AmountInterest RateMonthsInterest Amount
Section 234B₹25,0001%12₹3,000
Section 234C₹5,000 (June) + ₹30,000 (September) + ₹55,000 (December)1%3 months each₹2,700
Total Interest₹5,700

How To Pay Advance Tax Payment Online? 

To Make Advance Tax Payment Online

Step 1: Go to the official tax portal Go to the Income Tax Department website and also contact our Expert Team.

Step 2: Go to Quick Links Click on e-Pay you can also e-Pay Tax in the search bar.

Step 3: Fill in the details Enter the details like PAN assessment year, and tax amount to be paid.

Step 4: Make Payment Pay using net banking debit card or other available options.

Step 5: Get Confirmation Receive the payment receipt and save it for records.

This process ensures that the tax is paid directly to the government and is credited to your tax account.

What is Advance Tax Journal Entry?

1 While paying advance tax

DateParticularsDebit (Dr.)Credit (Cr.)
[Date]Advance Tax A/C₹40,000
To Bank A/C₹40,000

2 While making adjustments against final tax liability

Account NameDebit (Dr.)Credit (Cr.)
Income Tax A/C₹60,000
Advance Tax A/C₹40,000
Bank A/C₹20,000

What is Advance Tax For Senior Citizen?

Individuals aged 60 years or above who do not have income from business or profession are exempted from paying taxes. This means they do not have to pay tax in installments in a financial year. Also they can file income tax returns to pay their entire tax liability.

Exemption It’s important to note that senior citizens with no professional income are exempted from paying advance tax, providing a sense of security and clarity about their tax status.

Regular tax payments They can pay their entire tax liability by the due date when filing their income tax returns, usually July 31.

Business Income If a senior citizen has income from any business or profession, he/she has to follow the regular advance tax provisions like other taxpayers.

This relaxation simplifies the tax process for senior citizens who do not have business income.

Highest Advance Tax Payer in India?

High-profile individuals and large companies such as the Tata Group Infosys and Wipro also contribute significantly to advance tax payments, reflecting their substantial income. These payments often amount to hundreds or even thousands of crores annually.

The exact ranking of the highest advance taxpayers may vary each year based on the income and tax strategies of these entities.

Who Should Pay Advance Tax? 

Advance tax must be paid by those individuals and businesses whose tax liability is ₹10,000 or more in a financial year.

Salaried Person  If your employer has not deducted the entire tax liability through TDS (tax deduction at source), you have to pay advance tax on additional income like interest, rental income, or capital gains.

Freelancers and Self-Employed Persons  Professionals like doctors, lawyers, consultants and others who have good income from different sources apart from their salary.

Businesses  Both small and large businesses, including companies, partnerships and proprietorships, will have to pay advance tax if their total tax liability exceeds ₹10,000.

Persons having a rental income capital gains or other income  People who earn income from multiple sources  such as rent  capital gains from the sale of assets  or interest  will need to calculate and pay advance tax

Senior Citizens  Individuals aged 60 years or above who do not have income from business or profession are exempted from paying tax

In short, any individual whose tax liability exceeds ₹10,000 for the year after TDS and other credits is required to pay advance tax in installments

Conclusion

Advance tax is an essential part of the Indian tax system, which ensures timely tax collection and reduces the burden of year-end payments for taxpayers. This applies to individuals, freelancers, businesses, and others whose tax liability exceeds ₹10,000 in a financial year. Paying advance tax involves estimating income, deducting eligible expenses, and paying the tax in installments throughout the year

Understanding who must pay advance tax, how it is calculated, and the associated interest for non-compliance helps taxpayers avoid penalties and manage their finances more effectively. Compliance with advance tax provisions not only ensures that taxpayers remain compliant with tax laws but also that they contribute efficiently to the revenue flow of the government, making them an integral part of the larger system.

FAQs

1 What is Advance Tax?

Answer Advance tax is a system in which taxpayers pay their tax liability in installments throughout the financial year rather than making a lump sum payment at the end of the financial year. This applies to people whose tax liability is more than ₹10,000 in a year.

2 Who is required to pay Advance Tax?

Answer Salaried individuals freelancers self-employed individuals businesses and any individual with additional income must pay advance tax whose total tax liability exceeds ₹10,000 in a financial year. Senior citizens who do not have income from business or profession are exempted.

3 How is Advance Tax Calculation?

Answer To calculate advance tax, estimate your total income, subtract deductions calculate taxable income apply tax rates deduct TDS/TCS and pay the balance in installments as per due dates. Do.

4 What are the Due Dates for Paying Advance Tax?

Answer Advance tax is paid in four installments:
15% by 15th June
45% by 15th September (cumulative)
75% by 15th December (cumulative)
100% by 15th March (cumulative)

5 What if I don’t pay advance tax on time?

Answer If you do not pay advance tax on time or make short payments, interest will be charged under Sections 234B and 234C of the Income Tax Act. Section 234B applies for short payments, and Section 234C applies for deferment.

6 How is interest calculated on advance tax?

Answer Under Section 234B, interest is charged at the rate of 1% per month on the shortfall from 1st April to the date of payment. Under Section 234C, interest is charged at the rate of 1% per month for a moratorium, calculated on the shortfall of each installment.

7. How can I pay advance tax online?

Answer You can pay advance tax online by visiting the Income Tax Department website, entering the required details, and making payments through net banking or debit card.

8. What is the Journal Entry for Advance Tax?

Answer The journal entry to pay advance tax is

While making payment: Advance Tax Account Debit to Bank Account

While adjusting final liability: Income Tax Account debited from Advance Tax Account to Bank Account

9. Who are the highest advanced taxpayers in India?

Answer Prominent individuals such as Mukesh Ambani and large companies such as Reliance Industries Tata Group Infosys and Wipro are often among the highest advanced taxpayers in India.

10. What should I do if my advance tax liability varies during the year?

Answer If there is a change in your income or deductions during the year, you should recalculate your advance tax liability and adjust the remaining installments accordingly to avoid interest penalties.

11. Whether salaried persons may be required to pay advance tax?

Answer Yes if salaried individuals have additional income (e.g., rental income, capital gains) and their total tax liability after TDS exceeds ₹10,000, they have to pay advance tax.

12. Are There Any Exemptions from Paying Advance Tax?

Answer Senior citizens of the age of 60 years and above who have no income from business or profession are exempted from paying advance tax.

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