Advance tax is the tax that is payable on the total income of the year that is earned from different sources including salary, business, profession, rent etc. It is supposed to be paid at the end of the financial year.
It is also known as ‘pay as you earn’ scheme and is payable if the income tax liability exceeds Rs 10000 in a financial year. It should be paid in the same year in which the income was received.
The article will give us more details about what is an advanced tax.
The salaried individuals are not required to pay advanced tax as they already pay, tax at source. It is only applicable to individuals who earn income from sources other than salary and if salaried individuals earn any income from any other sources, they have to pay advance tax too. Sources such as; income received via capital gains on shares, interest earned on fixed deposits, winnings earned from a lottery and rent or income earned from house property.
An individual can calculate advance tax on its own to determine if he has to pay advance tax or not.
The steps to calculate it is:
Determine the income
The first and the foremost step is to determine the income which a person has received other than its salary. It is important to include any of the ongoing agreements that might pay out later.
Minus the expenses
The expenses are to be deducted from the income and one can deduct the expenses related to its work ( freelancing) such as rent of the workplace, travel expenses, the internet and phone costs.
Total the income
The other income which a person has received in the form of rent, interest, income etc are to be added and the TDS is to be deducted from the salaried income.
Total the advance tax
If the tax due exceeds Rs 10000, then a person is obliged to pay advance tax.
Advanced tax applies to all taxpayers, salaried, freelancers, and businessman and senior citizens who are 60 years or older and also those who do not run a business are exempted from paying advance tax. A taxpayer who is liable to pay this tax should pay it in installments as per the due dates that are provided by the Income Tax Department.