What is Advance Tax?
Advance Tax means that you are required to pay tax to thegovernment on your income throughout the year as you earn this Income.
Who is it applicable for? If in a financial year yourtotal 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 notrun 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, theperson paying you will deduct TDS before paying you. If the TDS deducted ismore than your tax due, then you may not have to pay advance tax.
Salaried Employees: If you work at a company and earn asalary, your employer is going to deduct TDS on salary. So you don't have todeal 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 mayhave to pay advance tax. This trips a lot of people over as they do not knowthey are liable for advance tax!
Freelancers: Freelancers almost always have advance taxdue. This is because when freelancers get paid, TDS deducted by the personpaying the freelancer is usually not enough!
Here's how you can calculate your Advance Tax:
Estimate your Freelancing Income: Add the expected incomefrom 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 toreduce expenses which are directly related to the freelancing work. Rent ofyour workplace, internet, telephone costs, depreciation on computers, travelexpenses etc. Read more here: Income and Expenses of a Freelancer
Add up all other Income: Add expected income from otherheads like House Property, Interest Income, etc. Apply the latest Income TaxRates to calculate your tax due. Do remember to reduce any TDS that may havebeen deducted from your Income.
If the remaining Tax Due exceeds Rs 10,000, you are requiredto pay Advance Tax as per the due dates mentioned below.
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