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May 16, 2022

Advance Tax under Income Tax

 

  • 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 installments as per due dates provided by the income tax department.

 

  • Who should pay Advance Tax?
  • If your total tax liability is Rs 10,000 or more in a financial year you have to pay advance tax. Advance tax applies to all taxpayers.
  • Presumptive income for Businesses/ Professionals – The taxpayers who have opted for presumptive taxation scheme under section 44AD/ 44ADA have to pay the whole amount of their advance tax in one instalment on or before 15 March.

 

  • Who is exempt from Advance Tax?
  • Resident Senior citizens, who are 60 years or older, and do not run a business, are exempt from paying advance tax.
  • Is an NRI liable for payment of advance tax?
  • Yes, an NRI is liable for payment of advance tax on the income earned in India as per provisions of the Income Tax Act in force for the relevant assessment year.

 

  • What are the Due dates for payment of Advance Tax?
  • For Taxpayers other than who have opted for presumptive scheme-
Due Date Advance Tax Payable
On or before 15th June 15% of advance tax
On or before 15th September 45% of advance tax less advance tax already paid
On or before 15th December 75% of advance tax less advance tax already paid
On or before 15th March 100% of advance tax less advance tax already paid

 

  • For Taxpayers who have opted for presumptive scheme-
Due Date Advance Tax Payable
 On or before 15th March 100% of advance tax

 

  • What happens if I don’t pay any Advance Tax?
  • Interest under section 234B is applicable in addition to 234C

 

  • When is 234B applicable and what is section 234B?
  • Interest under section 234B is applicable when:
  1. Your tax liability after reducing TDS for the financial year is more than Rs 10,000 and you did not pay any advance tax.

                                                                          (OR)

  1. You paid advance tax, but advance tax paid is less than 90% of ‘assessed tax’.

 

In any one of the above cases, interest under section 234B shall be applicable. 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.

 

 

  • When is 234C applicable and what is section 234C?
  • Section 234C deals with interest to be levied in case of any shortfall in payment of Advance Tax Instalment Payments. Under section 234C interest penalty is levied @1% pm of tax due
Particulars Rate of Interest Period of Interest Amount on which interest is calculated
If Advance Tax paid on or before June 15 is less than 12% of the Amount* Simple interest @1% per month 3 months 15% of Amount* (-)tax already deposited before June 15
If Advance Tax paid on or before September 15 is less than 36% of the Amount* Simple interest @1% per month 3 months 45% of Amount* (-) tax already deposited before September 15
If Advance Tax paid on or before December 15 is less than 75% of the Amount* Simple interest @1% per month 3 months 75% of Amount* (-) tax already deposited before December 15
If Advance Tax paid on or before March 15 is less than 100% of the Amount* Simple interest @1% per month 1 month 100% of Amount* (-) tax already deposited before March 15

 

  • Under which circumstances advance tax interest is not payable?
  • No interest is payable if there is any shortfall in payment of advance tax due if it is on account of underestimation or failure to estimate the amount of capital gains or dividend or speculative income (lottery income, gambling income, etc.).
  • The taxpayer has paid in full, the tax payable on the income mentioned above, while paying remaining instalments of advance tax due, or if no instalment is due, the taxpayer pays them before the end of the financial year.

 

  • When is Interest under sec 234A Applicable?
  • If you have unpaid taxes that are outstanding and you have not filed your returns by the due date, you will be charged an interest amount of 1% per month or part of the month (simple interest) on the tax amount outstanding. This interest will be calculated from the due date applicable to you for filing of return of the relevant financial year till the date that you actually file your return.

 

  • To summarize there are 3 sections for levying interest for default in payment of advance tax and default in furnishing income tax return before due date:
  1. Section 234B – Interest for defaults in payment of advance tax
  2. Section 234C – Interest for deferment of advance tax
  3. Section 234A – Interest for defaults in furnishing return of income

 

Written By: Darshan Sancheti

Updated as on: 28th August 2021.

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