"Under Indian Tax Law, taxes for a tax year shall be payable in advance during the tax year itself. Here is a summary on how tax payers should comply with advance tax requirements and what are the consequences of non-compliance? "
21 December 2022
If the aggregate income tax liability of a taxpayer in a financial year exceeds Rs.10,000, then he is liable to pay the tax in installments during the year rather than paying the entire tax at the end of the year. The tax so paid during the year is called Advance Tax (to mean tax paid in advance). It is also known as Pay As You Earn Tax. This enables the government to receive a steady flow of tax collections throughout the year instead of receiving all tax payments at the end of the year, thereby facilitating the timely payment of expenses. The liability to pay Advance Tax falls due on all assesses whether they are salaried, self-employed, businessmen etc.
For a salaried individual, there would not be much advance tax to pay, as the tax liability on entire salary will be deducted by the employer at the time of payment of salary and the same will be reported in Form 16 issued to the employer.
Due date for payment of advance tax
Time limit | Advance tax payable |
On or before 15th June | 15% of the estimated tax for the year |
On or before 15th September | 45% of the estimated tax for the year |
On or before 15th December | 75% of the estimated tax for the year |
On or before 15th March | 100% of the estimated tax for the year |
The taxpayers who have opted for presumptive scheme of taxation under section 44AD to 44ADA are not under an obligation to pay advance tax as per above schedule. Such taxpayers are required to pay 100% of their tax liability on or before 15th March of the tax year.
In case of capital gains arising after the due date of any installments, then the entire amount of tax payable on such capital gain shall be paid in remaining installments of advance tax which are due.
Interest on late payments of advance tax
Interest for non-payment or short payment of advance tax is calculated in 2 blocks. The first one is for deferment and the second one as interest for default in payment of taxes.
1. Deferment in instalments of Advance Tax – Interest u/s 234C
Interest @ 1% per month is payable if advance tax is not paid as per above schedule.
Interest u/s 234C shall be levied if;
Advance tax paid on or before 15th September is less than 30% tax due on returned income; or
Advance tax paid on or before 15th December is less than 60% tax due on returned income; or
Advance tax paid on or before 15th March is less than 100% tax due on returned income; or
No tax has been paid by assessee.
2. Default in payment of Advance Tax – Interest u/s 234B
Interest at the rate of 1% is payable if 90% of the tax liability is not paid before the end of the financial year.
Advance Tax is calculated by estimating the current year income and applying the tax rates prescribed in each Finance Act. In case the actual tax liability at the time of filing of Income Tax Returns is less than the amount of Advance Tax paid, then the same can be claimed as refund.
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