Description

Income tax is a form of tax levied by the government on individuals’ or entities’ income, typically calculated as a percentage of the income earned during a specific period. Advance tax, also known as pay-as-you-earn tax, is a system of paying income tax periodically throughout the year rather than in a lump sum at the end. Here’s a more detailed breakdown:

Income Tax:

1. Definition: Income tax is a direct tax imposed on individuals or entities (such as businesses, corporations, etc.) by the government based on their income.
2. Types of Income: Income subject to taxation includes salaries, wages, interest, dividends, rental income, capital gains, business profits, and other sources of income.
3. Tax Rates: The tax rates usually vary based on the level of income and the tax laws of the country. Tax rates may be progressive, meaning they increase as income levels rise.
4. Taxable Income: Taxable income is calculated by subtracting allowable deductions and exemptions from gross income.
5. Filing: Taxpayers are typically required to file tax returns annually, reporting their income, deductions, and credits to determine their tax liability.
6. Payment: Taxes can be paid either through withholding by employers (for employees) or through estimated tax payments made directly by individuals or entities.

Advance Tax:

1. Definition: Advance tax is a system of paying income tax in installments over the course of the financial year, rather than waiting until the end of the year to settle the entire tax liability.
2. Applicability: Advance tax is generally applicable to individuals, self-employed professionals, businesses, and entities whose tax liability exceeds a certain threshold set by tax authorities.
3. Payment Schedule: Taxpayers are required to make advance tax payments in specified installments during the financial year. These installments may be quarterly or at other intervals as determined by tax laws.
4. Calculation: Advance tax payments are typically based on the estimated income for the year and the applicable tax rates. Taxpayers are required to estimate their income and calculate the tax liability for the year to determine the amount of advance tax due.
5. Penalties: Failure to pay advance tax or underpayment of advance tax may result in penalties and interest charges imposed by tax authorities.