Sole Proprietor pay 4 times advance Income tax based on estimated earning how this possible?

Rules 182 views 2 replies

mack

Thinking-to-start-business

154 Points Joined November 2022

Why does a Sole Proprietor need to pay Income Tax in the form of advance tax, four times during the year based on estimated income?

Because how someone can conclude their estimated future income ? And if I don't earn any profit for a particular quarter then from where a person can give income tax in advance (Logically how this is possible).

Does this mean that when I was doing service in a company as an employee then the company was filing my TDS 4 times a year in advance? because employees of a company and a proprietor both use the same PAN number and are treated as individuals.

I am just confirming that. In both cases (as an employee of a company or a proprietor )

The IT return is filed One time before July but Income Taxes are paid 4 times in a year based on estimated income ? Correct me if my understanding is wrong.

If suppose I am paying 20000 for cumming quarter in advance and when the quarter comes I earn more profit so for than estimated income than what ?

Replies (2)

kl Bhavana

Student CA Final

417 Points Joined July 2013

Hi Mack,

Advance tax shall be paid on estimated tax liability (if more than 10k). Based on applicability you may need to pay advance tax on quarterly basis or on yearly basis.
Please note that if your estimated income changes by the end of quarter then advance tax has to be calculated on updated income. So, in a particular quarter if your income is nil then advance tax calculation you have to do accordingly.

Hope this clarifies, if more clarification required please write mail at Bhavana @ lbkca.in.

Thanks
Bhavana K L
Chartered Accountant
L B K & Associates

mack

Thinking-to-start-business

154 Points Joined November 2022

Here estimated tax liability (if more than 10k) is nothing but the Profit as Income tax is only given against profit. Correct me if my understanding is wrong ?

So in simple words : Advance tax for a quarter is basically calculated based on the current running quarter profit (already running) and the profit of those quarters which already passed till the beginning of the financial year (1 April) Average out. and if I paid more Income tax due to arriving on past quarter profit then I can claim those by filing the IT return (one time) at the end of the financial year ? Correct me if my understanding is wrong ?

Or you are telling that suppose I purchase 110 units of product (in one quarter) each on 100 rupees so the total purchase price is 11,000 (which is more than 10K) and this is a liability (till these products are not sold) and my selling price is 15,000 for all these units which means for that particular quarter my profit margin would be 4,000 (what I am expecting before the quarter passed or before the profit happened). Now Income tax is calculated on this 4,000 which is an estimated profit. (and if suppose I was unable to sold all units for that particular quarter then I will factor out and pay less advance Income tax for the next to next quarter) Correct me if my understanding is wrong.

-- Do a Sole Proprietor selling a product to another country through the export need to pay Income tax or can avail deduction ?

or technically he has to pay Income tax on export profit but he may get a deduction/discount from the government as a part of promoting export business in India or to support small companies or proprietors so that they can grow their business.