Advance tax is that portion of your income tax liability that needs to be paid before the end of the financial year itself. If you are liable to pay this kind of income tax, it helps to learn how to calculate advance tax on your income.

But First, Do You Need to Pay Advance Tax?

According to section 208 of the Income Tax Act, 1961, anyone whose estimated tax liability for any given assessment year (AY) exceeds ₹10,000 must pay advance tax for that AY. This includes salaried and self-employed individuals. 

That said, section 207 of the Income Tax Act, 1961, offers an exemption from advance tax to resident senior citizens who do not have any income from business or profession. 

How Do You Calculate the Advance Tax Payable?

It is also crucial to learn how to calculate the advance tax due. Here’s what you need to do to arrive at this sum.

1. Estimate your gross total income (GTI) for the financial year under the different heads of income.
2. From the gross total income, subtract the eligible deductions as applicable to you to arrive at the net taxable income. 
3. Apply the income tax rate as per the relevant income tax slab to arrive at your total tax liability. 
4. From this sum, subtract any tax deducted at source (TDS) and tax collected at source (TCS) to arrive at your total advance tax liability. 

This sums up how to calculate advance tax. However, the liability is distributed across four installments, as shown below. 

What Happens if You Do Not Pay Advance Tax When Due?

Non-payment of will attract a penalty in the form of interest charges under section 234B of the Income Tax Act, 1961. Advance tax interest calculation is fairly simple. The interest is levied at 1% per month or part of the month on the amount of unpaid advance tax. 

So, for instance, say Rs. 40,000 is the amount of advance tax due, and say this sum has been unpaid for 2 months and 14 days. In this case, the advance tax interest calculation will be done as shown below.

Interest u/s 234B:

= Rs. 40,000 x 1% x 3 months 

= Rs. 1,200

Are Advance Tax Liabilities Too High? The Right Investments Can Help.

With the right investment planning, you can bring down your overall tax liabilities during the year (and this includes advance tax dues). There are many new-age investment options like Equity Linked Savings Schemes (ELSS) that give you the benefit of tax savings as well as market-linked returns. 

Fi Money can help you with your investments here. Download the Fi Money app and invest in the funds of your choice via daily, weekly, or monthly SIPs. You also get the advantage of commission-free investments as well as the guidance of epiFi Wealth, a SEBI-registered investment advisor.

Frequently Asked Questions (FAQs)

1. What is an example of how advance tax is calculated? 

Let’s say your total estimated tax liability for a given financial year is Rs. 1,00,000. Here’s how to calculate advance tax liabilities in this case (assuming you do not choose presumptive taxation).

• 15% of the total liability i.e. Rs. 15,000 is due by June 15
• 45% of the total liability i.e. Rs. 45,000 is due by September 15
• 75% of the total liability i.e. Rs. 75,000 is due by December 15
• 100% of the total liability i.e. Rs. 1,00,000 is due by March 15

‍2. How is advance tax calculated?

Advance tax is calculated by estimating your gross total income (GTI) for a given financial year, making the eligible deductions from the GTI to arrive at the net taxable income, and applying the relevant income tax slab rate thereon.