WHAT IS ADVANCE TAX?
Advance tax means income tax should be paid in advance instead of lump sum payment at year end. It is also known as pay as you earn tax. These payments have to be made in instalments as per due dates provided by the income tax department.
Total estimation is used for the calculation of advance tax.
WHO SHOULD PAY ADVANCE TAX?
- If the total tax liability exceeds Rs 10,000 in a financial year in case of salaried, freelancers and businesses, then advance tax shall be payable.
- Senior citizens whose income does not come out of any business or profession, are exempt from paying advance tax.
- In case of Presumptive income under Section 44AD for Businesses & for Professionals, the taxpayers have to pay the whole amount of their advance tax in one instalment on or before 15th March of any financial year. Although, they can pay all of their tax dues till 31st March.
ADVANCE TAX DUE DATES
Advance Tax has to be paid in different installments. The due dates for payment of advance tax are as follows:
|STATUS||By 15th |
|By 15th September||By 15th December||By 15th March|
|All assessee (other than eligible assessee as referred to in section 44AD/44ADA)||Minimum 15% of Advance Tax||Minimum 45% of Advance Tax||Minimum 75% of Advance Tax||100% of Advance Tax|
|Taxpayers who opted for presumptive taxation scheme of section 44AD/44ADA||Nil||Nil||Nil||100 % of Advance Tax|
INTEREST UNDER SECTION 234B
Interest under section 234B is applicable in two of the following cases:
- When the tax liability after reducing TDS for the financial year is more than Rs.10,000 and advance tax hasn’t been paid, or
- The advance tax is paid, but the amount paid is less than 90% of the ‘assessed tax’.
- Interest is calculated @ 1% on (Assessed Tax less Advance Tax).
- Part of a month is rounded off to a full month.
- The amount on which interest is calculated is also rounded off in such a way that any fraction of a hundred is ignored.
Assume that Saurabh needs to pay a total tax of Rs.1,00,000. And, TDS of Rs 85,650 has already been deducted from his income. Saurabh paid Rs.5,000 on 25th March and he paid the balance amount at the time of filing his return on 17th July. Let’s check whether Saurabh needs to pay interest under section 234B.
- First let’s calculate assessed tax.
- Assessed tax = Rs 1,00,000 (total tax) – Rs 85,650 (TDS) = Rs 14,350
- Saurabh should have paid at least 90% of the assessed tax or 90% of Rs 14,350 which is Rs 12,915 before 31st March. However, he paid only Rs 5,000.
- Therefore, Saurabh is liable to pay interest under section 234B.
- Rs 14,350(Assessed Tax) – Rs 5000(Advance Tax) = Rs 9350.
- Interest will be calculated as : Rs 9350 x 1% x 4 months (April, May, June, July) = Rs 374
- Rs 374 is the interest payable under section 234B by Saurabh.
INTEREST UNDER SECTION 234C
Income Tax Department strives to make it as easy and convenient for citizens to comply with advance tax payments. So, one has the option of paying it in 4 instalments quarter-wise over the financial year.
However, if there is still any default, there are consequences in the form of interest penalty. Section 234C deals with the interest to be levied on the defaulters of payment of Advance Tax installment.
The interest for late payment is set at 1% on the amount of tax due. It is calculated from the individual cut-off dates shown above, till the date of actual payment of outstanding taxes.
The interest under this section is charged according to the scheduled installments. The taxpayer has to pay interest if he/she has paid the advance tax
- Less than 12% of assessed tax before 15th June
- Less than 36% of assessed tax before 15th September
- Less than 75% of assessed tax before 15th December
- Less than 100% of assessed tax before 15th March/31st March
Mr. X has the total tax liability of Rs.1,00,000. This tax is to be paid in 4 installments. The calculation of interest to be charged for delay will be calculated as follows:
|Due Dates||Advance Tax to be paid||Advance Tax actually paid||Shortfall||Months for which interest is charged||Penal Interest|
|15th June||15,000 (15%)||5,000||10,000||3||10000*1%*3= 300|
|15th Sept||45,000 (45%)||25,000||20,000||3||20,000*1%*3 = 600|
|15th Dec||75,000 (75%)||35,000||40,000||3||40,000*1%*3 = 1200|
|15th March||1,00,000 (100%)||50,000||50,000||1||50,000*1%*1= 5000|
CRITERIA UNDER WHICH ADVANCE TAX INTEREST IS NOT PAYABLE
In case, there is any shortfall in the payment of advance tax due if it is on account of underestimation or failure to estimate the amount of capital gains or speculative income (lottery income, gambling income, etc), then the interest would not be payable.
Also, interest would not be payable if the taxpayers pay his dues before the end of the financial year.
Q1. Does an NRI have to pay advance tax?
- An NRI, who has an income accruing in India and the tax liability is in excess of Rs 10,000, is liable for payment of advance tax.
Q2. A senior citizen only has interest and pension income. Should he/she pay advance tax?
- Resident senior citizens who do not have income arising out of business or profession, are not liable for advance tax.
Q3. Can an assessee claim deduction under 80C while estimating income for determining my advance tax?
- Yes. An assessee can consider all the deductions under 80C (whichever applicable within the limit) while estimating the income for the financial year for computing your advance tax liability.
Q4. How can we make payment for advance tax?
- Advance tax payment can be made using Challan 280 just like any other regular tax payment.
Q5. What happens if an assessee misses the deadline for payment of the last installment of advance tax, i.e., on 15th March?
- Payment of advance tax can be made on or before 31st March of the year. Such payment will still be treated as advance tax only.