Advance Tax and Self-Assessment Tax in India

In the realm of fiscal responsibilities, the government relies significantly on taxes to fuel its multifaceted agendas, from infrastructural development to the provisioning of diverse services. India boasts an intricately structured tax collection mechanism wherein individuals contribute based on their income brackets. This article provides a comprehensive understanding of what Advance Tax is, who should pay it, and how to calculate it.

Advance Tax: A Step-by-Step Guide

Advance Tax is the payment of taxes in installments during the financial year when a taxpayer is earning the income. This is why it is also called ‘Pay As You Earn’ tax. Every taxpayer, whose tax liability exceeds INR 10,000, needs to pay advance tax on a quarterly basis. In case of non-payment, interest under sections 234C and 234B might be levied.

Here is a step-by-step guide to calculate the Advance Tax:

Figure out how much money you’ve earned, not including your salary.
Subtract all your expenses, like medical insurance, phone bills, and travel costs, from your income.
Add any extra income which you earned, such as interest from FDs, house rent, or lottery winnings.
If the tax amount you calculated is more than 10,000, then you need to pay advance tax.

The deadlines for paying advance tax in India for the financial year 2023-2024 are as follows:

On or before 15th June: Pay 15% of the advance tax.
On or before 15th September: Pay 45% of the advance tax (minus tax already paid).
On or before 15th December: Pay 75% of the advance tax (minus tax already paid).
On or before 15th March: Pay 100% of the advance tax (minus tax already paid).

Self-Assessment Tax: What You Need to Know

Self-Assessment Tax is the tax liability assessed by the taxpayer on his total income after the financial year ends. If there is any outstanding tax liability after adjusting advance tax and TDS, then it needs to be paid under the self-assessment tax head at the time of filing the income tax return. Non-payment of tax can lead to levy of interest under section 234A. Also, filing the ITR without payment of tax can lead to the ITR becoming invalid or defective raising further penalties.

Calculating Taxable Income

Calculating taxable income involves several steps:

Determine Gross Salary: Start by calculating your gross salary. This includes your basic salary, allowances, bonuses, and any other taxable components.
Identify Exemptions: Certain components of your salary may be exempt from income tax. Common exemptions include House Rent Allowance (HRA), Leave Travel Allowance (LTA), and Standard Deduction. Subtract these exemptions from your gross salary to arrive at your taxable salary.
Calculate Deductions: You can claim deductions under various sections of the Income Tax Act, such as Section 80C (for investments like Provident Fund, PPF, or life insurance), Section 80D (for health insurance premiums), and Section 24b (for home loan interest). Subtract these deductions from your taxable salary to arrive at your net taxable income.
Determine Taxable Income: After considering exemptions and deductions, you have your taxable income.

The income tax calculation is done based on the following formula:

Taxable Income=Gross Salary−Deductions

Paying Taxes Online

You can pay your taxes online in India by following these steps:

Navigate to the e-Pay Tax section: Go to the e-Filing portal www.incometax.gov.in and click on ‘e-Pay Tax’.
Enter PAN/TAN and Mobile Number: Fill in the required details like PAN and mobile numbers.
Select the correct Assessment Year and Payment Type: An OTP will be shared with your mobile number.
Enter Tax Payment Details: Once the OTP is verified, select the correct Assessment Year and Payment Type.
Select the Payment Method: Enter the tax payment details.
Verify Payment Information: Select the payment method.
Submit to Bank: Verify the payment information and click ‘Submit to Bank’.
Receive Payment Confirmation: You will be redirected to the website of the Payment Gateway where you can login or enter Net Banking/ Debit / Credit Card / UPI details and make the payment. After successful payment, you will receive a confirmation e-Mail and an SMS on the e-Mail ID and Mobile number registered with the e-Filing portal.

Advance Tax, also known as ‘Pay As You Earn’ tax, is a method where taxpayers pay their income tax in installments throughout the financial year, instead of paying it all at once at the end of the year. This method is applicable to salaried employees, self-employed individuals, and business professionals who owe more than Rs 10,000 in taxes for the year. Older citizens aged 60 and above are exempt from paying advance tax.

Frequently Asked Questions (FAQs) About Advance Tax in India

Who should pay Advance Tax?
- Salaried individuals, freelancers, and businesses with a tax liability exceeding Rs.10,000 in a financial year are required to pay Advance Tax. Older citizens aged 60 years or more who do not run a business are exempt from paying Advance Tax.
How is Advance Tax calculated?
- Advance Tax is calculated based on your estimated income for the year. You need to estimate your total income, deduct the expenses, add any extra income, and if the tax amount calculated is more than 10,000, then you need to pay Advance Tax.
What are the due dates for Advance Tax payment?
- The due dates for Advance Tax payment for the financial year 2023-2024 are as follows:
  - On or before 15th June: Pay 15% of the advance tax.
  - On or before 15th September: Pay 45% of the advance tax (minus tax already paid).
  - On or before 15th December: Pay 75% of the advance tax (minus tax already paid).
  - On or before 15th March: Pay 100% of the advance tax (minus tax already paid).
What is the penalty for not paying Advance Tax?
- If you do not pay Advance Tax on time, you are liable to pay interest under two sections of the Income Tax Act: Section 234B and Section 234C.
How can I pay my Advance Tax online?
- You can pay your Advance Tax online by visiting the e-Filing portal www.incometax.gov.in and following the steps provided.