Advance Tax can be simply understood as an advance estimation of total taxable income and, thereafter, a presumptive calculation of the tax amount payable by the assesse for the relevant financial year.
An assessee who is liable to pay advance tax is required to estimate his current income and pay advance tax thereon without having to submit any estimate or statement of income to the assessing authorities. In simpler words, it is payment of the income tax in equal parts throughout the year, rather than paying the lumpsum tax amount at the end of the year.
Applicability of Advance Tax Liability:
Advance Tax Liability is applicable on all tax payers, whether salaried, freelancers or businesses. In case of salaried tax payers, if the employer deducts tax at source or TDS, then there is no further need of payment of advance tax.
However, if such an assessee has any other income other than salary, then he/she is required to meet advance tax liability for such income. Such incomes may include capital gains on shares or house property, interest on investments, etc. after making appropriate deductions for losses, if any.
How to Calculate Advance Tax?
Tax can be computed on the current income (estimated by the taxpayer) at the rates in force during the financial year. Income received in the previous financial year can be taken as the taxable income for the calculation of advance tax liability. In case of businesses and professionals like doctors, lawyers, etc. resident in India, whose gross receipts or turnover of businesses is less than ₹ 2 crore per annum, they are exempted from the mandatory payment of advance tax. They have to pay 100% Advance Tax by 15th March. Such businesses are relieved from maintaining books of accounts. However, they are not allowed to deduct any business income against this business income.