Should you pay advance tax? 3rd installment is due by 15th December

If you are likely to pay Rs 10,000 or more in taxes for financial year 2016-17, your taxes should be paid in advance. Advance tax simply means paying your income tax in ‘advance’ instead of paying it in a lump sum at year end.

Who should pay advance tax?

Advance tax applies to every type of taxpayer.

  • Individuals
  • Businesses
  • Companies
  • Firms
  • Professionals


Are you salaried? If salary forms a significant part of your income, monthly TDS deductions by your employer will take care of your taxes and usually you won’t have to worry about advance taxes. However, if you have a large income from interest or rental income, about which the employer has no clue, you may have to pay advance tax.

Are you in business? Those who are running a business, or are self-employed, or a freelancer, its pretty likely that you’ll have to pay advance tax. Even though your income may be subject to TDS, TDS is not enough to cover tax total dues.

Usually TDS is deducted @ 10% for freelancers, however, income is taxed at progressive tax slab rates of 10%, 20% and 30%. So a freelancer’s tax liability will be more than the TDS deducted on her income.

Are you a senior citizen? Senior citizens are exempt from paying advance tax. So senior citizens can pay all their tax liability by 31st March and not face any penalty. However, senior citizens who are doing a business have to pay advance tax.


Advance tax must be paid in instalments. 75% of your total annual tax is due on 15th December. If you have not paid any advance tax so far, don’t worry. You can pay 75% of your taxes by 15th December.


How to calculate advance tax instalment?

To pay 75% of your annual tax liability, you need to estimate your total annual income. Project income for the whole year. Similarly, project expenses incurred to earn this income. Now deduct Section 80 investments and expenses that you want to claim from this total income. And apply tax rates on the income less deductions. This is exactly how you would calculate your annual income at year end. 75% of the total tax calculated has to be paid by 15th December.


Do presumptive income businesses have to pay advance tax?

Starting FY 2016-17, presumptive income scheme applies to both Businesses and Professionals.

Businesses are covered under section 44AD

Professionals are covered under section 44ADA

Businesses: Up till FY 2015-16, those covered under presumptive scheme were not required to pay advance tax. However, in Budget 2016 it was announced that those covered under section 44AD shall have to pay one instalment of advance tax – by 15th March. If they pay their taxes in full by 31st March, that will be considered as advance tax paid and there shall be no penalty for non-payment of advance tax.

Professionals: Those seeking to report presumptive income under new section 44ADA will have to make payment of advance tax as per instalments. 75% of their total tax is due on 15th December 2016.


Non-payment of advance tax

Failing to pay taxes as per instalments mentioned by the income tax department can lead to penal interest under section 234B and 234C. Section 234B interest is levied when no advance tax is paid. Section 234C interest is charged when instalments are short paid. Interest is set at 1% simple interest on tax due, calculated from the instalment due dates, till the date of actual payment of outstanding tax.


Need help with calculating advance tax dues

Are you unsure about how to calculate and pay advance tax? You want a CA to review your calculations. Or your estimates for your annual income have changed significantly and you are worried about paying higher taxes? Our CAs can help you calculate your annual tax liability. Drop us an email and we’ll help you out.

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