Income Tax Act, 1961 is an Act formulated by the parliament of India for the Assessment, management, and return of tax on income in India. It is the standard measure for regulation of taxation in India. Advance Tax is the tax paid before end of each financial year. It also called ‘pay as you earn scheme’ and is to be paid in the same year it is earned or received. Advance tax is tax to be paid by the people who have other sources of income apart form their salaries. This tax is applicable to rental income from house property, capital gains, on any fixed deposit, or lottery winning, etc. the payment procedure of advance tax is that it can be paid online or through authorised banks. The tax is payable if the tax liability exceeds Rs. 10,000 in a financial year, it is to be paid in the year it is earned or received. There is a certain criterion for the people who must pay advance tax that is:
- The tax liability of the person should be Rs. 10,000 and more.
- You should be either a self-employed person or a salaried individual.
- It is to be paid on interest received on fixed deposits, winnings of lottery, rental income earned from house property, income earned through capital gains.
The last date for payment of advance tax for this financial year i.e., 2020-2021 is 15th March 2021. Salaried people, businesses, and freelancers earn income from other sources apart from their regular income, so after adjusting of expenses they need to pay advance tax on other sources of Income. While TDS is deducted from the salaries of employees, advance tax is charged on their other sources of Income which is not subject to TDS.
Calculation of Advance Tax:
The following are the steps to be followed to collect advance tax:
- Determine the amount of income you earned in that financial year other than your salary. Any amount that you may receive on any ongoing agreements is also to be added.
- Deduct any expense from that income. Expenses related to your work can also be deducted like, rent of the place where the person works, any travel expense, chares of internet etc.
- Add the other sources of income from rent, interest, lottery etc. also deduct the TDS deducted from your salary.
- If after calculating all this if the tax due exceeds Rs. 10,000 then advance tax is to be paid.
Example: Let’s say the total tax on the income for the financial year 2020-2021 is 30,000. As the amount of tax is exceeding 10,000 advance tax is to be paid by that individual.
The entire amount 30,000 will be paid as advance tax, but it will be paid in instalments.
- 1st instalment must be paid by 15thJune, 2020 (15% of 30,000) = Rs. 4,500
- 2nd instalment must be paid by 15thSeptember,2020 (45% of 30,000) = Rs. 9,000
- 3rd instalment must be paid by 15TH December,2020 (75% of 30,000) = Rs. 9,000
- 4th instalment must be paid by 15thMarch, 2021 (100% of 30,000) = Rs. 7,500
So, that is how advance tax in the above example would be paid. As you can see the 1st instalment is of Rs. 4,500 and the second instalment to be paid should be 45% of 30,000 which would amount to Rs. 13,500 but as you have already paid Rs. 4,500 in the first instalment, only Rs. 9,000 is due in the second instalment. And further instalments are calculated according to this rule. The total amount of advance tax paid at the end of financial year would total up to Rs. 30,000. Calculation of which would be done as per the above-mentioned method.
Exemption in Advance Tax:
- Citizen aged above 60 years and above are to be exempted from paying advance tax.
- Salaried people falling under the category of TDS net are to be exempted from paying it. However, any earnings from other sources will attract advance tax.
- If tax payable for that year is less than the TDS deducted, then that person does not have to pay any advance tax.
I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.
If you are interested in participating in the same, do let me know.
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