Provisional Tax Law and Legal Definition
Provisional tax means tax paid in advance, in the form of installments for the following year's income tax. A provisional tax is calculated on the basis of actual income derived in the preceding year and the estimated taxable income. Originally, provisional tax is an advance payment of tax and it forms part of the pay-as-you-earn (PAYE) system of tax collection. The amount that is paid as provisional tax will be set off against the final tax liability at the end of the tax year. Hence, provisional tax is not a separate tax but it is simply a way of paying income tax during the tax year the income is earned. Provisional tax spreads the tax load over the tax year, thereby preventing the accumulation of large amount as tax on assessment.
Compulsory provisional tax payments represent the tax paid on anticipated income. Compulsory provisional tax payments are made six months after the beginning of a year of assessment, as well as at the end of the assessment year.