What is Advance Tax? Advance Tax means that you are required to pay tax to the government on your income throughout the year as you earn this Income.
Who is it applicable for? If in a financial year your total tax liability exceeds Rs 10,000 you will be required to pay Advance Tax. Do remember to include all heads of income calculating Advance Tax.
Senior citizens, those who are 60 years or older and do not run a business, are exempt from paying advance tax.
Let us point out Tax Deducted at Source (TDS) as a concept. When you receive any income (your salary, Interest Income), many a times, the person paying you will deduct TDS before paying you. If the TDS deducted is more than your tax due, then you may not have to pay advance tax.
Salaried Employees: If you work at a company and earn a salary, your employer is going to deduct TDS on salary. So you don’t have to deal with advance tax.
However, if you have Interest Income from Fixed Deposits, etc which is more than Rs. 50,000, you should calculate your tax due as you may have to pay advance tax. This trips a lot of people over as they do not know they are liable for advance tax!
Freelancers: Freelancers almost always have advance tax due. This is because when freelancers get paid, TDS deducted by the person paying the freelancer is usually not enough!
Here’s how you can calculate your Advance Tax
- Estimate your Freelancing Income: Add the expected income from your clients. If you have ongoing agreements which lay out payment terms, use those for estimating your income.
- Subtract Expenses: From this income, you are allowed to reduce expenses which are directly related to the freelancing work. Rent of your workplace, internet, telephone costs, depreciation on computers, travel expenses etc. Read more here: Income & Expenses of a Freelancer
- Add up all other Income: Add expected income from other heads like House Property, Interest Income, etc. Apply the latest Income Tax Rates to calculate your tax due. Do remember to reduce any TDS that may have been deducted from your Income.
- If the remaining Tax Due exceeds Rs 10,000, you are required to pay Advance Tax as per the due dates mentioned below.
Due Dates of payment of Advance Tax
|On or before 15th June||–|
|On or before 15th September||Up to 30% of advance tax payable|
|On or before 15th December||Up to 60% of advance tax payable|
|On or before 15th March||Up to 100% of advance tax payable|
Note that you are not required to submit any supporting documents while paying your advance tax. In case some of your expected income or expenses have undergone a change, you can always re-estimate your income and adjust payments accordingly, before paying the next installment.
How to pay Advance Tax? Here’s how you can pay your advance tax to the government Pay Advance Tax
You can also read through the tax filing guide for Freelancers or write to us firstname.lastname@example.org to understand more about how to reduce your tax due as a freelancer.