The new Financial Year has been started…Now everyone start giving declaration to their employer regarding TDS deduction, many people start think about their investment strategy for upcoming year. The same way advance tax also plays very crucial part in our taxation circle. We all know the 1st installment of advance tax will due in the month of June, hence today I am writing this article which will cover about Liability to pay advance tax, Person not liable to pay advance tax, Due dates for payment of advance tax and interest levied if Advance Tax not paid in time under Section 234, Section 234B and Section 234C.

Liability to pay advance tax

As per section 208, every person whose estimated tax liability for the year is Rs. 10,000 or more, shall pay his tax in advance, in the form of “advance tax”. In this part you can gain knowledge on various provisions relating to payment of advance tax by a taxpayer.

Person not liable to pay advance tax

As discussed above, every person whose estimated tax liability for the year is Rs. 10,000 or more is liable to pay advance tax.

  • However, a resident senior citizen (i.e., an individual of the age of 60 years or above during the relevant financial year) not having any income from business or profession is not liable to pay advance tax.

Note: Please note that the assessee who declares its income under presumptive taxation scheme e.g. under section 44AD or 44ADA they also need to pay advance tax. They are no more exempt from this provision.

Due Dates of Advance Tax

Provisions of section 211 of the Income Tax Act, 1961 specifies the installment of advance tax and due dates thereon.

Following table reflects the advance tax due dates for individual and corporate taxpayers [applicable for taxpayers other than assessee covered u/s 44AD(1) or u/s 44ADA(1)] –

ADVANCE TAX DUE DATES PERCENTAGE OF ADVANCE TAX PAYABLE
On or before 15th June 15% of advance tax
On or before 15th September 45% of advance tax
On or before 15th December 75% of advance tax
On or before 15th March 100% of advance tax

Following table reflects the advance tax due dates for taxpayers who has opted for presumptive taxation scheme – business income [section 44AD(1) or section 44ADA(1)]–

ADVANCE TAX DUE DATES PERCENTAGE OF ADVANCE TAX PAYABLE
By 31st March 100% of advance tax

Note: 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 234A, 234B and 234C.

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:

Tax Liability was Rs 2,40,000, while TDS was Rs 40,000.

Tax Assessment: Rs 2,00,000 (2,40,000-40,000)

Now IT department assesses, whether partial payment comes under limit of 90%.

Rs 2,00,000* 90% = Rs 1,80,000

Therefore amount of Tax paid was less than amount due by Rs 60,000 (1,80,000-1,20,000).

The total interest due under section 234B will be: Rs 60,000 * 1%* 4 months (April-July) = Rs 2,400.

The interest is taken till July because which is the due date of payment for individual assesese and assumed as month of return filing.

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 is an assessee whose income tax computed was Rs 6,00,000

He paid the following advance tax:

1. 10thJune: Rs 30,000

2. 15thSeptember: Rs 50,000

3. 15thDecember: Rs 25,000

4. 15th March : Rs 30,000

Total = Rs 1,35,000

TDS= Rs 1,20,000

Tax Assessment: Rs 6,00,000- 1,20,000= Rs 4,80,000

Penalty on the Advance Tax is calculated on the basis of difference between actual amount paid and due.

15% of Rs 4,80,000 = 72,000 differential = 72,000- 30,000 = Rs 42,000

45% of 4,80,000 = 2,16,000 differential = 2,88,000- 80,000 = Rs 1,36,000

75% of 4,80,000=3,60,000 differential =3,60,000-1,05,000= Rs 2,55,000

100% of 4,80,000 = 4,80,000, differential = 4,80,000-1,35,000 = Rs 3,45,000

Interest Charges:

Rs 42,000*1%*3 months = Rs 1,260

1,36,000*1%*3 months = Rs 4,080

2,55,000*1%*3 months = Rs 7,650

3,45,000*1%*1 months = Rs 3,450

Total Penalty= Rs 16,440.

Republished with Amendments

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9 Comments

  1. SUDHA KUMARI MISHRA says:

    if an assessee under section 44AD OR 44ADA pay the advance tax on 21st March of the financial year if he is liable to pay the interest under section 234 B or 234 C.
    If assessee not opted 44AD pay the advance tax on 21st of the March of the financial year if he is liable to interest under section 234B or234C

  2. Nirmal golecha says:

    Sr citizen having income from rent, share trading(short term capital gain) and intt income from Fixed Deposit, are required to pay advance tax or not , if their total income excceeds the exempted limit. Please guide

  3. 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.

  4. 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.

  5. 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.

  6. 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

  7. 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

  8. 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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