Legal Services India - What is Advance Tax? Who is Liable to Pay Advance Tax? How to Calculate Advance Tax?
Advance Tax

What is Advance Tax?
Who is Liable to Pay Advance Tax?
How to Calculate Advance Tax?

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Advance Tax
Tax-payers are required to pay advance tax on their I which they expect to earn during the current year. For example financial year 2006-07 (relevant to assessment year 2007-08) a< tax is payable in installments during 2006-07 itself. The advance tax so paid is adjusted against the total tax assessed for that assessment year, i.e. AY. 2007-08

Who is Liable to Pay Advance Tax?
1. All persons including salaried employees' and pension whose case advance tax payable during a financial year is Rs or more, are required to pay advance tax.

'Advance Tax' for this purpose means: Total tax on the estimated income for current financial year - TDS/TCS, which is required expected to be deducted/collected, during the year, if any.

Thus, if the tax payable (after all deductions, rebates and T a financial year is Rs. 5000, or less, no advance tax is payable and such tax can be paid on self-assessment before filing the return

2. Persons who have received an order u/s 210(3) in Form N( pay an amount by way of advance tax, should deposit such are the installments as specified in the order. (Such an order I served upto the last day of February of the financial year).

If that person estimates his income at a higher amount th specified in the order u/s 210(3), then he should pay advanCE accordance with such higher estimate.

However, if he estimates his income at a lower amount, then he should send an estimate of such lower income in Form 28-A, before e next installment falls due and deposit the remaining installments advance tax accordingly.  [ Sec. 210(4) & (5)]

How to Calculate Advance Tax?
1. Advance tax is payable (in installments, as above) on total income (estimated for the financial year) including capital gains and casual incomes such as winnings from lotteries, races, etc. and after adjusting expenses or losses.

2. Therefore, income for the current year should be estimated as precisely and correctly as possible.

3. If any capital gain or casual income arises subsequent to payment of an installment, the remaining installments of advance tax should be accordingly revised. If any such income arises after 15th March, tax should be deposited on such incomes latest by 31st March of the financial year.
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4. Remember, non/short payment and deferment of advance tax attracts penal interest. Refer illustrations of this chapter.

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