Advance tax: Are you required to pay Advance tax? What are consequences for not paying Advance tax?

Taxation

Do you know what is the due date for payment of Income tax for a financial year. ? With the increased list of transactions under the umbrella of TDS and TCS year by year, major part of your income tax is deducted and deposited in the form of TDS/TCS. The balance tax liability is paid before filing Income tax return. But as per section 208 of Income tax Act, If estimated tax liability (after deducting TDS) of any person, is Rs. 10000/- or more then that person is required to pay his/her tax liability in the form of advance tax as per as per schedule given below:-

 

(A)Due date for payment of advance tax 

InstallmentsDue dateFor any assessee (except assessee referred in next column)Assessee declaring income under 44AD / 44ADA
1ston or before 15th June15% of advance taxnil
2ndon or before 15th Sept.45% of advance taxnil
3rdon or before 15th Dec.75% of advance taxnil
4thon or before 15th March100% of advance tax100% of advance tax

Note-

(1) Only If your total tax liability is Rs 10,000 or more in a financial year then you have to pay advance tax.

(2) Taxpayers who opt for presumptive scheme are exempt from advance tax for FY2017-18.

(3) Upto FY 2015-16, there were separate percentage of advance tax payable for individual (nil, 30%, 60% & 100% due on same dates ) and separate percentage of advance tax for corporates (15%, 45%, 75% & 100% due on same dates) But by Budget 2016 (W.e.f FY 2016-17) common percentage of advance tax payable is made applicable for all assessees except the assesee who declares his income in accordance with section 44AD & 44ADA.

(4) Any payment of tax made on or before 31st march of same FY, shall also be treated as advance tax. 

(5) Some incomes such as capital gains and some speculative incomes(lottery and gambling etc) are hard to predict accurately, Hence if the shortage in payment of advance tax on account of under estimation due to such income then no interest in charged u/s 234C. But advance tax for these income is to be paid in forthcoming installment once actual income for these is known but before end of FY i.e. 31st march.

(B)Estimating your tax liability for the purpose of Advance Tax

For the purpose of advance tax, tax liability of a person is estimated as per provisions of income tax and as per availability of data relating to income as on the date of estimation i.e. 15th June, 15th Sept, 15th Dec. , 15th March and 31st march.

  • Income under all the five heads of income is estimated as per availablity of data and these incomes are added up to arrive at GROSS TOTAL INCOME.
  • Various deductions (estimated for FY) u/s 80C to 80U are deducted to arrive at TOTAL INCOME.
  • TAX on TOTAL INCOME is calculated as per prevailing tax rates and special rates are used for specially taxed income.
  • EC & SHEC are added up.
  • Applicable rebates and relief also considered.
  • TDS (estimated figure for FY) is deducted.
  • Now estimated tax liability figure is arrived. IF this is less than Rs. 10000/- then the person is not required to pay advance tax.

(C)Consequences for non-payment of Advance Tax.

If your tax liability is more than Rs. 10000/- then make sure that you have paid all tax dues as advance tax. If any sum is pending make sure that it is deposited before 31st march of the FY, to reduce your interest liability u/s 234B. For delayed payments of advanced tax interest u/s 234B & 234C are charged. Interest u/s 234C is charged for shortage in payment of advance tax as per instalments given above but this is charged only upto the end of FY i.e. 31st march. and If any part of advance is still unpaid after end of FY then interest u/s 234B is charged for delay in payment.

But as capital gains and some speculative incomes(lottery and gambling etc) are hard to predict accurately, Hence if the shortage in payment of advance tax on account of under estimation due to such income then no interest in charged u/s 234C. But advance tax for these income is to be paid in forthcoming installment once actual income for these is known but before end of FY i.e. 31st march 2020.

Interest u/s 234C on last installment if you forgot to pay 100% of your advance tax till 15th March then if you

  • If you pay this on 16th march:- Interest u/s 234C @1% for one month and no interest u/s 234B.
  • If you pay on 31st March;- Interest u/s 234C @1% for one month and no interest u/s 234B.
  • If you pay this on 1st April:- Interest u/s 234C @1% for one month only and interest u/s 234B is 1% for one month.
  • If you pay this on 15th May;- Interest u/s 234C@1% for one month only and interest u/s 234B is 1% for two months (being 2% in total).
  • If you pay this on 31st July (at the time of ITR filing):- Interest u/s 234C @ 1% for one month only and interest u/s 234B is 1% for four months (being 4% in total).

Interest 234C is for the period upto 31st march for default in payment of advance tax as per installment schedule. Interest u/s 234C is not charged for after 31st march of same financial year. It tax is not paid even upto 31st march then interest w.e.f 1st April till the actual payment of tax covered by section 234B which is charged @1% per month or part of month.

Simple Understanding of Calculation of interest u/s 234C is given below:
 
Assessee declaring income u/s 44AD & 44ADA

  • Assessee declaring income u/s 44AD & 44ADA has to deposit 100% of advance tax upto 15th march.
  • There is no earlier installments, this is first & last installment.
  • Where the whole amount of advance tax paid by any assessee on or before 15th March is less than the tax due on the income returned then the assessee shall be liable to pay simple interest @ 1% on the amount of shortfall from the tax due on the returned income.
  • This was last installment for advance tax, hence interest is calculated only for one month without considering the actual date of payment of this tax. Interest for payment after 31st march is covered u/s 234B hence no interest for payment after 31st march is changed under 234C.

Other assessee:

  • They are required to pay advance tax in four installments (1) 15% upto 15th June (2) 45% upto 15th September (3) 75% upto 15th December and (4) 100% upto 15% march.
  • Where the advance tax paid on or before 15th June, 15th September, 15th December is less than 15%, 45% and 75% respectively on the returned income, then they shall be liable to pay simple interest at the rate of 1% per month for a period of three months on the amount of the shortfall. (interest of three months is calculated separately for each installment) u/s 234B.
  • Where the whole amount of advance tax paid by any assessee on or before 15th March is less than the tax due on the income returned then the assessee shall be liable to pay simple interest @ 1% on the amount of shortfall from the tax due on the returned income.
  • This was last installment for advance tax, hence interest is calculated only for one month without considering the actual date of payment of this tax. Interest for payment after 31st march is covered u/s 234B hence no interest for payment after 31st march is changed under 234C.