Practical Guide to Advance Tax Calculation & Payment

We have touched upon a lot of topics regarding tax, income tax returns, online income tax return, tax on insurance and benefits of the tax. One thing to be noted from all this is that filing your tax returns is not an easy job, but if done right can help recover a lot of money that has been cut from your various incomes.

Knowing the latest trends and all changes in rules and form types is a good way to keep you ready for the next assessment year. What is also vital is to make all payments on tax dues as early as possible, instead of waiting until the last moment. This will involve advance tax calculation, and the faster this is done, the better-prepared you are when the time to file our return does come along.

What Is Advance Tax?

Advance tax is income tax paid much before the due date, keeping in mind the huge amounts of tax that are paid at the end of the year. It is best to follow the policy where you pay as you earn, as these payments come in the form of installments, and advance tax calculation is done by the Income Tax Department. It is applicable to all assesses with a tax liability of Rs 10,000 and above.

It is payable as follows (as per 2016-17 financial year rules):

For companies: 15 percent of tax is payable
Others: NA

For companies: 45 percent of tax is payable
Others: 30 percent of tax is payable

For companies: 75 percent of tax is payable
Others: 60 percent of tax is payable

For companies: 100 percent of tax is payable
Others: 100 percent of tax is payable

Who Needs To Pay Advance Tax?

  • Those with tax liabilities to the tune of Rs 10,000 and more, This means that not everyone needs to be paying advance tax, and only those with a tax liability that is more than INR 10,000 per financial year need to do so. There are many agencies that help taxpayers save as much as possible on advance tax payment by calculating the bare minimum amount.
  • People with salaries and business people, There is no class or section of any profession that does not have to pay advance tax. It applies to businessmen, salaried people.
  • Senior citizens and those with presumptive schemes are exempt, People above the age of 60 or those without any business establishment owned are discounted from paying advance tax. Even those with presumptive taxation schemes, where 8 percent of business turnover is considered, do not have to pay advance tax.
  • The advantage of presumptive taxation schemes is that any business person whose business turnover is above INR 2 crores can opt for this, as it is covered under Sections 44AE and 44AD.
  • This kind of scheme has now been extended from just businesses to architects, lawyers, and these practitioners should have earned at least INR 5 lakh annually to be eligible.

Read About: How to save tax on your interest income


Advance tax calculation is similar to filing income tax returns, so the steps of calculation are also similar.

For Individuals

  • Check Form 26AS of the individual, and choose all incomes, which should be projected for the whole year. Same for TDS, if applicable.
  • Check if there is any other income, through bank statements and previous years’ incomes as well. Basically, check for incomes on which TDS has not been deducted, and hence aren’t shown on 26AS.
  • Check for investments of the assessee so that it can be deducted under Sections 80C, 80D, etc.
  • Once all income has been projected, apply tax as applicable in the financial year for which tax was cut and then get the Advance Tax Calculation.

For firms, companies and other entities

  • For companies with up to date accounts as on date of calculation
  • Check P/L account until the previous month.
  • Check if all other entries have been entered.
  • Based on previous month/day, assume figures for the current month so that P/L account shows projections until the date of calculations.
  • Check net and gross profit figures. Both should not be less than the previous year and based on this, again come up with an assumed net profit figure for the current month for advance tax calculation.
  • Under Section 234B, you need to pay only 90 percent of this amount due.
  • For firms without up to date accounts as on date of calculation
  • Predict revenue figures for the current month based on data from previous months/years.
  • Based on this sales figure, come up with net and gross profits, and make sure last year’s ratios are lesser.
  • Based on this net profit, get an advance tax calculation figure.

Read Also: Here’s Why You should be Efiling Income Tax

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