Before you pay your advance tax, there are things that you have to consider. These things shall ensure that you are filing your taxes in the right way. This is why. This blog details the 5 things to keep in mind before paying advance tax. Once you take care of these things, you can file advance tax properly, on your own and without any errors.
As the filing of returns countdown has started, so we thought to untwist the term advance tax for the taxpayer. There are so many questions hovering in your mind that whether advance tax applicable on you when you have to pay advance tax, what is the proportion of the advance tax and much more. Let's untwist these questions piece by piece.
Advanced Tax is simply as the name implies, pay your taxes in advance as you start earning instead of lump sum payment at the end of the financial year.
You must be trying to find out the logic behind the advance tax, let me just clear; if you think from government point of view then you will be able to figure out that the Government cannot wait until the end the of the financial year to collect your tax because government also needs funds the to run the economy every day, so it is difficult to wait for one cycle of financial year to collect your tax.
Advance tax is paid on the estimated income in a particular financial year like your salary. You can fairly estimate how much salary you are going to get by the end of the year. But as you are aware that you always get your salary after deducting tax which is called TDS (Tax Deducted at Source), so in this case, you advance tax is taken care of by the TDS. Therefore, most of the time salaried people don't need to worry about advance tax. Thus, we can say if you have any income other that salary then you must keep in mind the liability to pay advance tax.
- Threshold limit for Advance Tax: Advance tax liability arises only when your tax liability exceeds Rs. 10,000, mark the word tax liability, not the total income. It means first you have to compute tax on your total income, and if the tax exceeds Rs. 10,000 then only you are required to pay advance tax.
- Due Dates to Pay Advance Tax: Advance tax is paid in installments by the due date as prescribed under Income Tax laws. Below are the complete details
- Payment of advance tax: To calculate your advance tax, you can visit on http://www.incometaxindia.gov.in/Pages/tools/advance-tax-calculator.aspx
- Consequences of not paying Advance tax by due dates: If you forget to pay your advance tax by the due date then you have to pay simple interest @ 1% p.a. on the amount which should have been paid by the due dates.
- What happens if you have extra tax to the Government: If you have paid the extra tax than you are required to pay, then you can claim a refund of that extra amount.
So let's wrap up this article by giving you tips that you should start computing your income to know whether you are liable to pay advance tax or not so that you don't fall into the non-compliance pool.
Do I need to pay Advance Tax?
An individual/company is prone to pay advance tax if he has financial gain from interest, commission, rent, business or profession, etc., on that no tax has been subtracted at source like TDS (or tax has been subtracted at a lower rate). Advance liabilities arises wherever the balance liabilities is Rs 10,000/- or a lot of. If you're the salaried person with solely regular payment as the sole source of financial gain, Advance Tax wouldn't be applicable as tax subtracted at supply would be taken care of by the person who has hired you. If you have got different sources of financial gain, such as, financial gain from capital gains, shares and mutual funds, financial gain from house property, etc.; Advance Tax is obligatory.
How to Calculate Advance Tax?
- Estimate your Freelancing Income: Add the expected financial gain from your clients. If you have got in progress agreements that layout payment terms, use those for estimating your income.
- Subtract Expenses: From this financial gain, you're allowed to scale back expenses that are directly associated with the freelancing work. Rent of your work, internet, telephone prices, depreciation on computers, travel expenses, etc.
- Add up all different Income: Add expected financial gain from alternative heads like House Property, Interest financial gain, etc. Apply the newest tax Rates to calculate your tax due. Do bear in mind to scale back any TDS that may have been subtracted from your financial gain.
- If the remaining Tax Due exceeds Rs 10,000, you're needed to pay Advance Tax.
Paying Advance Tax is important as failure to pay it would lead you to be penalized. It is important that you should hire a trusted Tax consultant to help drive out the myths and build a strategy to best protect the company.