advance tax

Advance Tax

Advance Tax


Advance tax what does it mean who need to calculate that, who need to pay that, who governs it, why we need to pay it, etc. These are some important things which comes in the mind of tax payers who are new to this term.

‘Advance Tax’ we can generally understand its meaning from the name itself. Like it suggests Advance Tax means the tax which need to be paid in advance to the department. It is introduced to save the hidden time value which is earned by the assesse if he pays the tax at the time of return.

This is a general concept that to pay the tax in same year in which it occur. This clause is add by government to create a flow of cash throughout the year. It also known as ‘pay as you earn’ To make the cash flow constant. And their will not be deficit in cash as Tax is the main source of income to the government. But there is a problem that tax has to be pay for the whole year, but how can anyone know the future income. So this concept works on the theory of assumption and nominal basis.

We will later show calculation of income, tax to be paid and due dates to pay the tax.


Who have the liability to pay the Advance Tax?

Any person who have a tax liability of more than 10,000 Rupees in a financial year needs to pay his tax in advance. Advance tax applies to all tax payers except senior citizen i.e Indian citizens whose age is more than 60 years. And also taxpayers who opt for presumptive scheme where business is assumed at 8% are exempt from advance tax. Such taxpayers need to pay their tax by 15th March every year.

Taxpayers who are salaried employee and their source of income wholly depend on salary may not need to pay advance tax as there is a liability on their employer to deduct tax.


When to pay Advance Tax?

Advance Tax liability and due date is different for different assesses constituency.

Due Dates Companies
15th June 15%
15th September 45%
15th December 75%
15th March 100%


Calculation of Tax

Total Income to be earned in the financial year (Assumed) xxx
Add: Clubbed Income  xxx
Gross Total Income  xxx
Less: Deduction under chapter VI-A (xxx)
Total Income Chargeable to tax  xxx
Tax on Total Income  xxx
Add: Surcharge  xxx
Add: Cess and SHEC  xxx
Less: Relief under Section 90, 90A, 91 (xx)
Less: TDS/TCS  (xx)
Amount on which advance tax will be calculated  xxx


Default in Advance Tax

If assesse fail to pay the advance tax on time he is liable to pay the interest under section 234B & 234C.

Which is calculated as under

If unpaid advance tax at the end of financial year is more than 10,000. Assesse have to pay interest under section 234B @1% per month till the assesse deposit the rest amount in the account of Income Tax department.

If assesse fail to pay advance tax on time. He has to pay interest during the financial year on the amount which he deposit late @ 1% per month.


Let understand the difference between both by an example;

Mr. A doing a business under a proprietorship and he has a total tax liability of Rs. 50,000 during the financial year 2016-17

He has a liability to pay tax at

Due Date Liability Amount to be deposit
15th June, 2016 15% 7,500
15th September, 2016 45% 22,500
15th December, 2016 75% 37,500
15th March, 2017 100% 50,000


But Mr. A deposit amount as follows;

Date on which he paid Amount paid
30th September, 2016 6,000
25th January, 2017 12,000
23rd March, 2017 11,000
25th July, 2017 Rest amount


Now Mr. A is liable to pay interest as follows

Under Section 234C

Due Date Date on which he pays Difference in months Difference in Amount Interest amount
15th June, 2016 30th September, 2016 June, July, August, 7,500-0 = 7,500 7,500 X 3 Months X 1% = 225
15th September, 2016 25th January, 2017 September, October, November, 22,500-0 = 22,500 22,500 X 3 Months X 1% = 675
15th December, 2016 23rd March, 2017 December, January, February, 37,500-6,000 = 31,500 31,500 X 3 Months X 1% = 945
15th March, 2017 25th July, 2017 March 50,000-18,000 = 32,000 32,000 X 1 Month X 1% = 320
Total Liability under section 234C = 2165

Under section 234B

Mr. A pays rest 21,000 on 25th July 2017, means he pays after 4 months from 1st April, 2017.

Means he is liable to pay interest = 21,000 X 4 Months X 1% = 840



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