Definition
Advance Tax
Advance tax is income tax paid in instalments during the financial year as income is earned, rather than in a lump sum after the year ends.
The 'pay as you earn' principle requires taxpayers whose tax liability exceeds a threshold to pay advance tax in prescribed instalments through the year. This applies to the self-employed, businesses and individuals with substantial non-salary income not fully covered by TDS.
Falling short of the required instalments attracts interest. Senior citizens without business income are exempt, and those under presumptive taxation schemes get simplified single-instalment treatment. Advance tax keeps revenue flowing to the government steadily and avoids a year-end burden on taxpayers.
Related terms
- Advance Ruling (Tax)An advance ruling is a binding determination obtained from a designated authority on the tax treatment of a proposed transaction, before it is undertaken.
- TDS Section 194 VariantsThe Section 194 family of provisions requires tax to be deducted at source on various payments such as contractor fees, commission, rent, professional fees and dividends.
- Presumptive Taxation 44ADSection 44AD lets eligible small businesses declare income at a prescribed percentage of turnover instead of maintaining detailed books, simplifying compliance.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.