If you expect your total tax dues to exceed Rs 10,000 in financial year 2015-16, advance tax rules may apply to you. What this means is that instead of paying lump sum taxes, your taxes must be paid at regular intervals. These intervals are as per the advance tax payment schedule of the Income Tax Department.
The first instalment is payable on 15th September where 30% of your tax liability must be paid.
If you are salaried – TDS deductions by your employer take care of this requirement. However, if you have a large income from interest or house property income, which the employer may not know of – you must pay advance tax. Having an additional large income which is not subjected to TDS increases your annual tax liability, thereby making advance tax applicable to you.
In situations where TDS has already been deducted – it’s likely you fall in a higher slab rate. This may be true for freelancers or professionals who run their own businesses. Advance tax rules almost always apply to them – usually clients don’t deduct TDS or if they do its lower than the slab applicable to your total income.
To pay 30% of your liability you’ll have to estimate your annual total income for the year. Include all sources and make calculations of your total tax dues just like you do for your tax return.
Gross total income (Income from 5 heads of income)
Less: Deductions under section 80
Total expected income
Calculate tax (including cess) on this income
And pay 30% of it before 15th September.
Do note that non-payment of advance tax attracts interest under section 234B and 234C.
Exception – When you have earned capital gains during the year, it’s hard to estimate your advance tax liability accurately. In such cases you can catch up on any shortfalls in the remaining instalments and no interest under section 234B or 234C shall be levied.