Advance Tax – When and How Much. Consequences of non-payment / Short payment.
1. Applicability of Advance Tax – who is liable to pay advance tax?
a. If a person’s tax liability exceeds 10,000/-, Advance tax is payable as per income tax act.
b. Advance tax is applicable to all - including salaried employees, self-employed professionals, businessmen etc.
c. Senior citizens, i.e. a person who are 60 years or older are not required to pay advance tax if they are not carrying out any business or profession.
d. 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. They also have an option to pay all their tax dues by 31 March.
2. When Advance Tax should be Paid - Due Dates for payments of Advance Tax:
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 |
3. What if not paid/ short paid? - Consequences of non-payment of Advance Tax:
If the installments as above are not paid / short paid, then penal interest is charged as under:
· Interest under section 234A: Interest to be levied on late filing of Income Tax Return.
Interest Liability: Interest is calculated @ 1% per month on the balance tax liability from the due date of filing the return till the date of actual filing of Income Tax Return.
· Interest under section 234B: 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
You paid advance tax, but advance tax paid is less than 90% of ‘assessed tax’.
Interest Liability: Interest is calculated @ 1% on Assessed Tax less Advance Tax from end of financial year to the date of filing of Income Tax Return.
· Interest under section 234C: Interest to be levied on defaulters of Advance Tax Instalment Payments.
Interest Liability: The interest on delayed payment of advance tax in case of a taxpayer other than the one opting for presumptive income u/s 44AD is as below.
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 15% of the Amount | 1% per month | 3 Months | 15% of Tax Amount minus tax already deposited before June 15 |
If Advance Tax paid on or before Sep 15 is less than 45% of the Amount | 1% per month | 3 Months | 45% of Tax Amount minus tax already deposited before Sep 15 |
If Advance Tax paid on or before Dec 15 is less than 75% of the Amount | 1% per month | 3 Months | 15% of Tax Amount minus tax already deposited before Dec 15 |
If Advance Tax paid on or before March 15 is less than 100% of the Amount | 1% per month | Till payment of tax | 100% of Tax Amount minus tax already deposited before March 15 |
Illustration:
Let’s take an example. Suppose Mr. A has a tax liability of Rs.3,00,000 and he has TDS credit of Rs. 50,000. Mr A should pay advance tax of Rs.2,50,000 in 4 installments. Let’s assume Mr. A has paid following sums as advance tax during the year:
Advance Tax Installment Date | Advance tax paid on such date | Total cumulative advance tax paid | Ideal Advance Tax Amount | Shortfall |
15th June | 30,000 | 30,000 | 37,500 | 7,500 |
15th September | 40,000 | 70,000 | 1,12,500 | 52,500 |
15th December | 70,000 | 1,40,000 | 1,87,500 | 47,500 |
15th March | 60,000 | 2,00,000 | 2,50,000 | 50,000 |
Total | 2,00,000 | | 2,50,000 | |
As per Section 234B, since Mr. A’s advance tax payment is less than 90% of total advance tax liability, he shall be liable to pay simple interest at the rate of 1% on such short amount till the month of filing / payment of tax. Accordingly, he will have to pay interest on Rs.50,000 till the time he files his ITR.
Let’s assume that Mr. A files his ITR in the month of December i.e. 9 months after the end of the financial year. In such case, Mr. A will have to pay tax @1 % per month for 9 months on Rs.50,000. Thus, Mr. A will have to pay interest under section 234B of Rs. 4,500/-
Also in above example Mr A has paid the advance tax in 4 installments but it short by amount due. In such case interest under 234C will be calculated as follows:
Shortfall (as per table 1 above) | Interest for the months | Interest @1% per month |
7,500 | 3 months | 225 |
52,500 | 3 months | 1,575 |
47,500 | 3 months | 1,425 |
50,000 | 1 month | 500 |
Thus, total interest payable under section 234C is Rs. 3,725/-
In above example let us assume that the due date for filing of ITR was 31st July. But Mr. A has filed the return in December i.e. there is delay of 5 month. In such case an additional interest is levied for late filing of ITR under section 234A. Such interest is calculated at 1% per month on the shortfall amount, payable for delayed months. Thus, interest will be calculated @1% per month on Rs.50,000 /- for 5 months i.e. Rs. 2,500.
- Compiled by - Amruta Sohani