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Advance Tax Provisions of Income Tax Act 1961 A Laymans self help guide

Who is liable to pay advance tax under the Income Tax Act, 1961?
 All assesses are required to pay advance tax where the advance tax payable is Rs. 10,000 or more.

 How is Advance Tax calculated?

 It is calculated on Net Taxable Income after taking into account all sources of incomes (including house rentals, salaries, business incomes, capital gains, winnings from lotteries, crossword puzzles and interest incomes less. deductions).

 Advance Tax is based on the principle of "pay as you earn''. Normally tax payers assume that since on whatever income they are deriving in the financial year, tax at source is already being deducted by various authorities (employers, banks, tenants), their liability ceases until the time Income Tax returns are filed and Net Tax Payables are calculated. Hence they have no more responsibility or obligation to make payment of advance tax in the current financial year.

However this is a wrong assumption.

U/S 208 of I.T. Act, 1961, it is obligatory on every assessee to pay advance tax where the tax payable exceeds Rs. 10,000. Steps to determine if liability arises or not are given below:

 Step 1. Estimate Net Total Income:

Income from House Property


Net Income from Business/ Profession

Capital Gains

Interest Incomes

Gross Total Income

Less. Deductions u/s 80C to 80U

Net Total Income

 Step 2. Calculate Gross Tax Liability at prescribed rates for current financial year. In case assessee is Individual/ HUF, tax will be as per slab wise and in case assessee is a partnership firm or a corporate, calculate tax @ prescribed rate.

Tax so calculated

Add. Education Cess/ Surcharge if applicable

Less. TDS

Net Tax Payable

 Step 3. Determining if Advance Tax is payable or not

If the Net Tax payable so calculated above is more than Rs. 10,000, then assessee has to pay advance tax.

In my next post, I will be writing about interest calculations, due dates and forms required for advance tax filing.

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