The last date to file advance taxes is almost upon us–15th March 2016. If you haven’t filed advance taxes as yet for the current quarter, you should do that as soon as you can to avoid penal interest from the tax department. By 15th March, 100% advance tax must be paid.
What is advance tax?
Advance tax is tax that you pay to the government on the income as you earn it. Advance tax needs to be paid every quarter.
Who needs to pay advance tax?
Anyone whose total tax liability for the year exceeds Rs 10,000 needs to pay advance tax. This includes all heads of income like income from business or work, income from investment interest, income from property, etc. Anyone who runs a business or does freelance work is required to pay advance tax because even if you receive payments after tax is deducted at source, the TDS deducted is usually not enough.
“You don’t need to pay advance tax if your only source of income is your salary because the TDS deducted on your salary is advance tax paid by your employer.”
How to calculate advance tax
Advance tax can be computed in four easy steps:
- Estimate your income. If you have ongoing projects, add the expected income to your estimate
- Subtract expenses like rent, office overheads, depreciation, traveling costs, etc from this estimated income. Also reduce the amount for the TDS deducted from payments made to you
- Add other income from sources like investments, property and apply the income tax slab rates to find out how much tax you need to pay
- If the taxable amount goes beyond Rs 10,000, you need to pay advance tax
It is advisable to pay a little more than what you estimate to avoid penal interest if the advance tax amount is less than your tax due. You can claim a refund of the additional amount when you file your taxes.