PROSPERR.IO

While filing taxes, two terms often pop up and create confusion among taxpayers: Advance Tax and Self Assessment Tax. Both are important parts of the Indian tax system, but they serve different purposes and are applicable under different circumstances.

Let's see the difference between Advance Tax and Self Assessment Tax.

What is Advance Tax?

Advance Tax, as the name suggests, refers to the prepayment of taxes on an ongoing basis rather than paying the entire tax liability at the end of the financial year. It is a form of tax through which taxpayers are required to pay taxes in installments at specific intervals throughout the year, based on their estimated income.

Example: Let's say Mr. Abhi, a salaried individual, estimates his total income for the financial year to be ₹10,00,000. As per the Income Tax Act, if his tax liability exceeds ₹10,000 in a financial year, he is liable to pay Advance Tax. Therefore, he calculates his tax liability and pays it in installments as per the prescribed schedule.

Also Read, How to save money by timely paying your Taxes

Advance Tax Payment Schedule:

Advance Tax is typically payable in four installments, as follows:

What is Self Assessment Tax?

Self Assessment Tax, on the other hand, is the tax paid by taxpayers at the time of filing their income tax return to make up for any shortfall in their tax liability after considering TDS (Tax Deducted at Source), Advance Tax, and other tax credits.

Example: Continuing with our example, let's say Mr. Abhi's total tax liability after considering TDS and Advance Tax is ₹1,50,000, but he has only paid ₹1,30,000 through Advance Tax. In this case, he needs to pay the balance amount of ₹20,000 as Self Assessment Tax at the time of filing his income tax return.

Key Differences between Advance Tax and Self Assessment Tax:

Tax Planning Strategies:

Understanding the difference between Advance Tax and Self Assessment Tax is crucial for effective tax planning. Here are some strategies to optimize your tax liabilities:

• Regular Income Estimation: Accurately estimate your income for the financial year to avoid penalties for underpayment of Advance Tax.
• Investment in Tax-saving Instruments: Utilize tax-saving investments to reduce your tax liability and plan your Advance Tax payments accordingly.
• Timely Payment Compliance: Adhere to the prescribed deadlines for Advance Tax payments to avoid penal interest charges.

Conclusion

Compliance with Advance Tax and Self Assessment Tax regulations is essential to avoid penalties and legal complications. Timely and accurate payment of taxes not only ensures adherence to the law but also contributes to nation-building through revenue generation.

By understanding Advance Tax and Self Assessment Tax differences and adhering to compliance requirements, taxpayers can navigate the complexities of taxation effectively.