Payment of advance tax is governed by sec. 207,208,209,210 and 211 of the Income Tax Act 1961(“ITA”).

If the Income Tax Liability of any assessee is more than Rs. 10,000 in a financial year, then he is liable to pay such tax in installments during the year itself rather than paying this tax at the end of the year. This tax which is payable during the year is called “Advance Tax” or “pay as you earn tax” as tax is liable to be paid at the time the income is earned i.e. during the year rather than paying this tax at the end of the year.

For Individuals with Salary as the sole source of income, Advance Tax would be taken care of by the TDS deducted by the employer at the time of payment of salaries as reflected in Form 16.

DUE DATE AMOUNT OF TAX
15th September At least 30% of Tax on total income for the year.
15th December At least 60% of Tax on total income for the year less advance tax already paid.
15th March 100% of Tax on total income for the year less advance tax already paid.

Advance tax is to be paid on all incomes. Therefore, it is payable on capital gain also. However, as the capital gain cannot be estimated in advance, advance tax is paid on all capital gains when they arise in the immediately next advance tax due date.

Interest on late payment of Advance Tax:
Interest on late payment of Advance Tax is governed by sections 234 A, 234 B and 234 C.

Interest under section 234A – Default in furnishing the return of Income:
If an assessee has not filed the return of income within the due date, a simple interest @ 1% for every month or part of a month shall be payable. It is calculated from the due date to date of furnishing the return.

Example:
A company files its return on 15th December. Due date of filing return of income is 30th September. Let us assume that the tax payable by the company is Rs.2, 00,000. Interest will be calculated as follows:

Tax Liability Rs. 1, 00,000/-

Delay = 3 months i.e. October, November and December.

Interest payable = Rs.2, 00,000 X 3%= Rs. 6,000/-

Interest under section 234B- Default in payment of Advance Tax:
If an assessee who is liable to pay advance tax , but not paid the same or if the advance tax paid by him is less than 90% of the assessed tax, he is liable to pay simple interest at 1% every month or part of a month.

Interest is calculated from April 1st of the next financial year to the date of determination of total income under Section 143 (1) or till the date on which the self-assessment tax is paid, whichever is earlier. But, if regular assessment u/s. 143 (3) is completed, then interest is charged up to the date of regular assessment.

Interest shall be calculated on the amount equal to the assessed tax in case no advance tax is paid, or on the amount by which the advance tax paid falls short of the assessed tax.

Example:
Mr. X has a tax liability of Rs. 6, 00,000/-. TDS Rs. 1,00,000/-
Advance tax payment made by Mr. X for the year is as below:-
15th Sept 2012 Rs. 25,000/-
15th Dec  2012 Rs. 50,000/-
15th Mar  2013 Rs. 25,000/-

Total advance tax paid Rs.1, 00,000 /-

Interest u/s 234B is calculated as follows:
Tax on income Rs. 6, 00,000
Less TDS         Rs. 1, 00,000
————
Assessed tax     Rs 5, 00,000

90% of assessed tax =500000 X 90% = Rs. 4, 50,000 /-

Advance tax paid by Mr. X – Rs.1, 00,000 /-

Since there is a shortfall in payment of advance tax, Sec 234B is attracted.

Shortfall = Rs. 5, 00,000– Rs. 1, 00,000 = Rs.4, 00,000/-
(Shortfall means difference between assessed tax and advance tax paid).

Interest under section 234 B = 400000*1%*4 months (Apr-July) = Rs.16000 /-

Interest under section 234C
If the advance tax paid is in underestimated installments or if it s not paid at all, Section 234C gets attracted.

Interest is calculated on the difference between the installment paid and installment payable. Rate of interest is @ 1% p.m. for a period of 3 months for every deferment. But, for last installment on 15th March, interest would be 1% for 1 month only.

Example:
Mr. X gives the following details:
Tax liability on total income Rs. 5, 00,000/-
TDS = Rs. 1, 00,000
Payment of advance tax:
15 Sept 2012           Rs.  50,000/-
14 Dec 2012           Rs.1, 00,000/-
15 Mar 2013           Rs.1, 50,000/-
Total advance tax paid Rs.3, 00,000/-

Solution:-
Tax liability Rs. 5, 00,000
Less TDS Rs. 50,000
Assessed tax Rs.450000 [5, 00,000 minus 50,000]

Interest u/s 234C is computed as under:

Sept 15
30% of 4, 50,000 = 135000 minus 50000 i.e.; Rs. 85,000 short paid
Interest = 85,000*1% X 3months = 2,550/-

Dec 14
60% of 4, 50,000 = 2, 70,000 minus 1, 50,000/- = Rs. 1, 20,000/- paid short.
Interest = 1, 20,000*1% X 3months = 3,600/-

15 Mar
100% of 4, 50,000 = 450000 minus 3, 00,000 = Rs. 1, 50,000 /- paid short
1, 50,000 X 1% X 1month = Rs. 1500/-
Total Interest payable u/s. 234C is Rs. 2,550+ 3,600+ 1,500 = 7,650/-

(Mr. Vikram Ramchand, Founder at MakeMyReturns.com)

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0 responses to “Advance Tax and penalties on defaulting to pay it”

  1. Digvijay says:

    Please reply for me
    in one of my return of my client(individual), he has capital gain in Q1 and Q2 of 1,00,000 and loss of 3,00,000 in Q3. my query is whether he require to pay advance tax on those 1,00,000 or not on 15 Sept.

  2. Satish Bhatia says:

    Very informative article, here I would like to add couple of points. Income Tax Department pays interest on tax refund (if any) at 6% per annum provided the refund amount is more than the 10% of total tax payable for the assessment year.

  3. Satish Bhatia says:

    Very informative article, here I would like to add few points. In case of tax refund, the Income Tax Department pays interest on refund at 6% per annum provided the refund is more than 10% of total tax paid for the concerned assessment year.

  4. CA. bhavesh Savla says:

    Mr. Bhatnagar, you are partially correct. Advance tax is not to be paid for senior citizens but on one condition i.e. they are not engaged in any business or profession.

    Further advance tax is also not to be paid in case the business is covered under section 44AD i.e. presumptive taxation.

    CA. Bhavesh Savla

  5. B.R.Bhatnagar says:

    Kindly let me know if the payment of advance tax applies to senior citizens also.I was told that senior citizen need not pay. They can pay at the time of submission of Income Tax return. B.R.Bhatnagar

  6. SASI DHAR says:

    While calculating 234C, the tds amount should be 100000/-

  7. R S SHAH says:

    Mr. Vikram Ramchand,

    Thanks for providing the explanation is simple terms.
    You have explained in words the Provision of advance tax for income tax purpose.. section 234 A, 234 B, and 234 C.
    It could perhaps be better and more useful if the explanation is given by way of illustration in excel format, maybe expanding the illustration with a practical one. e.g. with income from various heads, including capital gains and then the tax calculations and the interest,,, The Computation of Income and the tax and interest invoved.
    THERE ALSO SEEMS TO BE A SMALL ERROR in the illustration given..
    The TDS is stated to be of Rs, 100,000 while in calculation it is taken at Rs 50000 only ? ?.

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