Advance tax payment requires taxpayers to pay their income tax in instalments throughout the financial year, rather than paying as a lump sum at the end. It is applicable to individuals, companies, and business entities whose tax liability exceeds ₹10,000. 

Advance tax computation is done by estimating the current financial year’s income and then applying the income tax rates applicable as per Income tax slabs. The advance tax payment calculation for each instalment is then done as per the applicable percentage of the total tax liability.

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Let’s see how to calculate advance tax to avoid any penalty.

Taxpayers can also easily get an estimate of their advance tax liability in India by using the advance tax calculator available on the official website of the IT department. 

An advance tax calculator considers various factors such as income sources, deductions, exemptions, and applicable tax rates to provide tax estimates. By using this calculator, taxpayers can plan their finances better, avoid last-minute tax burdens, and ensure timely compliance with tax regulations.

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Advance tax payment calculation in India involves a step-by-step process. Follow these steps to estimate your advance tax:

Step 1: Estimate your Total Income for the Financial Year

Gather information on all your income sources for the entire financial year. Include the following heads of income to calculate the income earned:

• Salary
• Rental income 
• Income from any interest earned from FDs, savings account, etc.
• Capital gains
• Income of minors if it is added to that of the taxpayer
• Any other income 

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Step 2: Calculate Deductions and Exemptions

Subtract eligible deductions from your total income that are applicable to you under various sections of the Income Tax Act, like 80C, 80D, etc. 

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Step 3: Consider TDS 

If you have any Tax Deducted at Source (TDS) on certain income, subtract it from the total income as well. The amount received will be your taxable income. This is the amount on which you will calculate your income tax liability. 

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Step 4: Apply Applicable Tax Rates

As per the income tax slab applicable to your taxable income and regime opted, apply the corresponding income tax rates and calculate your payable income tax. Also, apply the 4% cess on the tax to arrive at your total income tax liability. 

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Step 5: Advance Tax Payment Calculation

Now, divide your total income tax liability for the financial year into four equal installments as follows:

• On or before June 15: 15% of the total tax liability
• On or before September 15: 45% of the total tax liability
• On or before December 15: 75% of the total tax liability
• On or before March 15: 100% of the total tax liability 

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Also, remember to consider the following points when doing advance tax calculation:

• The tax slab rates are applicable to you.
• Tax rebate under Section 87A.
• The TDS to be deducted from your income or any advance tax already paid. 

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Let us understand how to use an advance tax calculator to know how much advance to pay, with the help of an example.

Suppose Rahul is a salaried taxpayer with the following income and investments:

• Annual Gross Income: ₹25,00,000
• Expenses: ₹12,00,000
• PPF: ₹50,000
• LIC Premium: ₹30,000
• Medical Insurance: ₹15,000
• TDS (Approximate): ₹50,000
• Fixed Deposit Interest: ₹8,000

Failure to pay advance tax or underestimation of advance tax payment will attract penalty u/s 234B and 234C, including an additional interest of 1%. In case of default payment, you can check your penalty charges using the advance tax interest calculator.

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Section 234B

Under this section, non-payment of advance tax or lower payment of advance tax attracts an interest of 1% on the unpaid tax amount. under 234B. To avoid this interest, taxpayers must pay at least 90% of the total tax as advance tax by 31st March. 

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