Are You Getting the Most Out of Your Income Tax - Explainer On Advance Tax and Step by Step process to calculate advance tax
Did you know that the taxes we typically pay at the end of each fiscal year might also be paid in 4 instalments over the course of the year? This idea of paying taxes as you go is known as "ADVANCE TAX."
The amount of income tax that is paid in instalments throughout the year as opposed to in one large sum at the end is known as Advance tax. Advance tax, which is often referred to as earn tax, must be paid in instalments by the due dates established by the income tax department.
All taxpayers with an estimated annual income tax liability of more than Rs. 10,000 must pay advance tax.
If a person simply receives a salary as their source of income, they do not need to pay advance tax because their employer withholds the tax at source (TDS). If they have additional sources of income, they must file advance tax.
The taxpayer is responsible for estimating their income, figuring out their estimated tax, and determining if they are required to make a payment.
By using the methods given below, you can calculate your own taxable income based on your previous year's income tax liability and determine whether you need to pay advance tax.
Ram is self-employed and anticipates earning Rs.11,00,000 from his firm during the current fiscal year.
Ram anticipates spending Rs.5,00,000 on everything from rent to phone recharges to trip costs and much more.
Consequently, the new taxable income is Rs.6,00,000.
Ram also anticipates receiving Rs.1,50,000 in FD interest and Rs.100,000 in dividends.
Therefore, the new taxable income is Rs.8,50,000.
Ram’s tax liability on Rs.8.5 lacs come to Rs.82,500 as per old tax regime.
Ram has already paid TDS of Rs.20,000 on dividends and interest from FDs, among other things.
Since the tax was already deducted at the source of the income, this will be subtracted from his tax burden.
Ram now owes a total of Rs. 57,500 in taxes.
Ram must now pay advance tax in the following manner:
Ram would be charged interest if he only pays Rs.7,000 as advanced tax in the first instalment rather than Rs. 8,625.
If Ram pays off the outstanding Rs.1,625 from the first instalment in the second one, he will be assessed interest at the rate of 1% per month between the first and second instalment, i.e. Rs.49. The situation would be reversed if Ram paid Rs.57,500 in income tax as opposed to Rs.65,000. Ram will receive his surplus payment of Rs.7,500 plus interest at a rate of 6% annually.
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