Let’s try to understand what is the concept of advance tax in India, when it is need to be paid, what if we don’t pay or what if we delay its payment etc. I have framed this article in question answers format so that it becomes easy to understand.
1. What is Advance Tax?
Every person has to pay his tax in advance if his estimated income tax liability in India for the year is Rs. 10,000or more. It means first a taxpayer should estimate his annual income of the financial year(current year) then he has to compute the tax liability on his estimated income. If it comes out to be more than INR 10,000 then he is liable to pay advance tax. Advance tax is based on concept of “Pay as you Earn”. If you are earning some income in F.Y 22-23 then you shall pay tax on it in F.Y 22-23 itself, provided estimated tax liability is more than INR 10,000.However, reporting of this income by filing tax return can be done only after the end of F.Y 22-23i.e. in the next F.Y which is called Assessment year.
2. Who is exempt to pay Advance tax?
A Resident senior citizen (i.e., a resident individual at least 60 years of age at any time during the financial year) is exempt to pay advance tax provided he doesn’t have any income from business or profession.
3. What are the due dates of paying Advance tax?
Due dates of payment of advance tax are as follows:
Due date of payment of advance tax
For any assesses(except the one in column 3)
An assesses who declares his business/professional income in accordance with the provision of section 44AD(1) or section 44ADA(1) i.e Presumptive income
|On or before June 15 of the previous year||Minimum 15% of advance tax payable||–|
|On or before September 15 of the previous year||Minimum 45% of advance tax payable||–|
|On or before December 15 of the previous year||Minimum 75% of advance tax payable||–|
|On or before March 15 of the previous year||Minimum 100% of advance tax payable||Minimum 100% of advance tax payable|
- Any payment of advance tax made on or before March 31 shall also be treated as advance tax paid during the financial year.
- If the last day for payment of any instalment of advance tax is a day on which the receiving bank is closed, the assesses can make the payment on the next immediately followingworking day, and in such cases, interest on late payment of advance tax would not be charged.
- Corporates and thosewho required to get their accounts audited shall make the electronic payment of tax through internet by way of credit or debit cards or internet banking.
- The tax payer other than point 3 can pay tax either by electronic mode or by physical mode i.e. by depositing the challan at the receiving bank.
- It is not necessary for that taxpayer to make online payment of taxes from his own bank account in an authorized bank. He can make payment from the account of any other person. However, the challan for making such payment must clearly indicate the PANof the tax payer on whose behalf the payment is made.
4.How to compute Advance tax?
Here are the steps:
a. First estimate the current income of F.Y
b. Compute Gross tax liability at the rates in force during the current F.Y.
c. Deduct TDS/TCS, if any to compute Net tax liability.
c. Pay 15% of net tax liability as first instalment before 15th June.
d. After making payment of firstinstalment of advance tax, revise the estimate current income. If there is any change in estimation then revise the remaining instalments of advance tax accordingly.
e. Second instalment will be at least 45% of advance tax payable and son on. Revise estimate current income and current tax liability thereon on payment of every instalment.
5. What if a taxpayer doesn’t pay advance tax or payment made by him is short?
If a taxpayer is liable to pay Advance tax but he doesn’t pay it at all or payment made is short then he can compute his Self-assessment tax at time of filing his annual income tax return. Whatever tax liability is due, he can pay as self-assessment tax.
As he is done default in paying advance tax, he is liable to pay some interest on this default as penalty. He can make payment of this delay as Self-assessment tax.
Interest for default in payment of advance tax is levied in following two cases:
a) When the taxpayer was liable to pay the advance tax but has failed to pay it.
b) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax.
In simple words and just for the sake of understanding the concept, assessed income is actual income at the time of payment of self-assessment tax while filing the tax return.
[As per law, Assessed tax means the amount of tax as determined under section 143(1) and where regular assessment is made, the tax on total income as determined under such regular assessment as reduced by tax deducted/collected at source, relief/deduction of tax claimed under various sections like sections 89/90/90A/91 and tax credit claimed under section 115JAA/115JD].
6. How to compute Interest for default in payment of advance tax?
As per the provisions of income tax act, interest on default in payment of advance tax is paid in two forms:
a. Interest for default in payment of advance tax [Section 234B]
b. Interest for default in payment of instalment(s) of advance tax [Section 234C]
Under section 234B, the taxpayer is liable to pay simple interest at 1% per month or part of a month for default in payment of advance tax. Interest is levied on the amount of unpaid or short paid advance tax. Interest will be levied from the first day of the assessment year, i.e., from 1st April till the payment of self-assessment tax. In a case where the income is increased on account of assessment/re-computation, interest will be levied on the differential amount from the first day of the assessment year till the date of assessment/re-computation.
Under section 234C, Interest under section 234C is levied, if advance tax paid in any instalment(s) is less than the required amount. In case of taxpayers (other than those who opted for presumptive taxation schemeundersection44ADorsection44ADA),interest shall belevied-
- If advance tax paid on or before 15th June is less than 12% of advance tax payable
- If advance tax paid on or before 15th September is less than 36% of advance tax payable
- If advance tax paid on or before 15th December is less than 75% of advance tax payable
- If advance tax paid on or before 15th March is less than100% of advance tax payable
In case of taxpayers who opted for presumptive taxation scheme of Section 44AD or section 44ADA interest shall be levied if advance tax paid on or before 15th March is less than 100% of advance tax payable.
Interest under section 234C is not levied, if, the shortfall in payment of advance tax is due to capital gains or income from new business or winning of lottery etc as these may be difficult to estimate in initial months of the F.Y. The taxpayer shall pay the required advance tax on such income as a part of immediate following instalments or till 31st March, if no instalment is pending.
Disclaimer: This article is just to make you understand about basicconcepts. Please take Professional advice in case you have any doubts.
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